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Paying Sales Commissions on Revenues vs. Profit

Sales Commissions

There are many different ways to structure and layer sales compensation and commission plans and most are based on revenue performance, but in some sectors compensating based on profit is popular and there are situations where it may make sense for your company as well.

Compensating on Revenues
The most common form of sales compensation, involves a paying a commission on sales. This works well where sales people need to be highly focused on driving top line results and growth. It is also typical where the sales person cannot influence margins either because they are selling an offering with a non-negotiable price or because the sales rep does not get involved in delivery. The benefit is that compensation is easy to calculate and sales people are not distracted by anything other than sales.

Compensating Based on Gross Margin
Compensating based on gross margin is popular in the services business where there are no fixed costs and in other price sensitive businesses such as Value Added Resellers.

Commission based on profit or gross margin has its pros and cons.

In the pros column the sales rep’s compensation is tied to their contribution to the bottom line, something that sounds like it could have no downside. It has the effect of encouraging sales reps to chase profitable business (however this can be achieved with fixed pricing as well) and striving to maximize profit, a healthy share of which the company keeps. Compensating on gross margins also discourages discounting because even a small drop in price might have a big impact on overall margin and therefore commissions paid out.

In a services business paying on gross margin can cause the rep to be distracted from the selling effort if they are worrying about how much delivery is making on a project and consequently how much they will be getting paid. This can even cause frustration if the rep feels delivery is not performing effectively and furthermore, there may be instances where you want to offer some concessions to win an account however this will cause your rep to lose interest as they will not be rewarded for their sales effort. In both cases these issues can be mitigated by paying on forecasted gross margin rather than actual gross margin.

In the end each company’s specific goals, business model, sector and set of economic conditions will dictate which path to take, and a properly structured plan will be a win-win for the employer and sales rep regardless of whether they are paying sales commissions on revenue or gross margin.

To your success!

Eliot

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Eliot Burdett

CEO at Peak Sales Recruiting
Before Peak, Eliot spent more than 20 years building and leading companies, where he took the lead in recruiting and managing high performance sales teams. He co-founded Ventrada Systems (mobile applications) and GlobalX (e-commerce software). He was also Vice President of Sales for PointShot Wireless.

Eliot received his B. Comm. from Carleton University and has been honored as a Top 40 Under 40 Award winner.

He co-authored Sales Recruiting 2.0, How to Find Top Performing Sales People, Fast and provides regular insights on sales team management and hiring on the Peak Sales Recruiting Blog.

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Sales On-Boarding in Small and Medium Sized Companies

How do you bring your new hires onboard your business? Leading corporations often have an orientation and indoctrination program that matches the multi-stage recruiting process they implement to ensure they get the people they believe are best suited for the roles they will fill within the company and the best fit for the company culture. They do spend considerable sums finding the right people, it makes sense to invest in keeping them and they are firm believers in the old adage’ “begin as you intend to go on”.

That’s fine for the larger companies with resources to invest and staff to manage the on-boarding, but what about small to medium enterprises (SME)? I know from first hand experience (my own included) that in smaller companies, the predominant philosophy applied to new sales rep on-boarding philosophy is sink or swim.

I am not proud to admit that more than once, in my start-ups, we would hire a new rep, show them their desk and phone and literally ask them what they needed from us to get going. Then we would cobble together whatever was required and ask them to start pounding the phones looking for leads. They would learn our company culture and how we sell ad-hoc and by osmosis.

We did this even though it is completely counterintuitive to invest a lot of time and money to find people and then potentially compromise your return on that investment by not setting reps up to be successful and hit the ground running. Partly I was too stupid to know better and partly I didn’t have anyone to help me provide a more comprehensive approach to acclimatizing a new sales hire.

No Excuse for Risking Your Investment in People

And it really is no excuse. There is a reason why a few start-ups grow faster than all the others and later in my career, I realized you are compromising results by not have a structured program for bringing new hires on-board.

We have written about sales on-boarding basics before on this blog, so I won’t rehash that, but suffice to say that the most successful companies, no matter how big or small, value their staff and want to ensure their new hires settle in with the minimum of problems and obstacles and the investment is small compare to the difference in sales output vs. the sink or swim approach which may work some of the time, but most of the time doesn’t.

To your success!

Eliot Burdett

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Eliot Burdett

CEO at Peak Sales Recruiting
Before Peak, Eliot spent more than 20 years building and leading companies, where he took the lead in recruiting and managing high performance sales teams. He co-founded Ventrada Systems (mobile applications) and GlobalX (e-commerce software). He was also Vice President of Sales for PointShot Wireless.

Eliot received his B. Comm. from Carleton University and has been honored as a Top 40 Under 40 Award winner.

He co-authored Sales Recruiting 2.0, How to Find Top Performing Sales People, Fast and provides regular insights on sales team management and hiring on the Peak Sales Recruiting Blog.

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Should You Put a Cap Sales on Commissions and Earnings?

Several studies have shown that high-achieving salespeople are motivated by financial rewards (Harvard Business Review, PsyMetrics, SalesDrive, and others). That’s not to say that all salespeople are primarily motivated by money or that money is the only thing that motivates them, but achieving high income is a big factor in motivating behaviour for most salespeople and this is particularly true when we are talking about top performing salespeople.

So when it comes to the sales compensation and the notion of capping commissions, there are some very real implications. As we have written about before, the comp plan influences the day-to-day behaviour and activities of sales reps (see Sales Compensation Plans that Lead to Great Sales Hires).

As a sales manager, I have used all sorts of carrots to entice reps to work a certain way. I put commissions on new sales and the reps brought in new accounts. I added accelerators and the reps pushed to hit new levels of sales. I added a reward for calls or meetings and reps became motivated to achieve those goals and earn more.

Besides being money motivated, top sales reps are very goal oriented so the carrot works well in sales.

Conversely, if you cap sales commissions, you remove the incentive to behave a certain way once the cap is reached and a sales rep that is no longer motivated by a comp plan represents a loss of control for the employer. I don’t know too many sales leaders who are comfortable with not being in control, therefore I don’t know too many sales managers who are fans of a cap on commissions.

Perhaps if your company had limited growth plans or barriers to delivering more business, then a cap might make sense to discourage growth. Remember that this may frustrate your best sales reps and potentially cause them to consider other employers where they can achieve uncapped earnings

If, on the other hand, your company goal is to grow and maximize profits and your compensation plan is profitable at any level, then every new sale represents profit so there is no economic downside for encouraging additional sales and paying additional commissions.

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Eliot Burdett

CEO at Peak Sales Recruiting
Before Peak, Eliot spent more than 20 years building and leading companies, where he took the lead in recruiting and managing high performance sales teams. He co-founded Ventrada Systems (mobile applications) and GlobalX (e-commerce software). He was also Vice President of Sales for PointShot Wireless.Eliot received his B. Comm. from Carleton University and has been honored as a Top 40 Under 40 Award winner.

He co-authored Sales Recruiting 2.0, How to Find Top Performing Sales People, Fast and provides regular insights on sales team management and hiring on the Peak Sales Recruiting Blog.

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Why Are Sales Hunters So Hard To Find? (and the Importance of the ABC’s of Recruiting)

There are literally a million different varieties of sales roles from those that handle inbound calls for information to those that manage existing relationships and those that open new accounts. The most coveted type of sales professional, what we tend to call, ‘Hunters’ pound the pavement (or the phone as the case may be), find their own prospects and generate their own leads, and develop and close new business. And they are very hard to find. A question we are often asked is “why is it so hard to find hunters?”

What Makes Great Sales Hunters?

Being an effective hunter requires a unique blend of personality traits including goal orientation, ambition, confidence, optimism, competitiveness, resilience and perseverance. This combination of traits is what leads a person to pursue opportunity like a bulldog, make numerous calls on cold prospects where rejection and failure is a real possibility and succeed in spite of adversity and poor odds. This combination of traits is also rare. Various studies have shown that perhaps only 10-20% of the population possess these traits and even fewer are in sales.

It is a simple fact that most people are better suited to other pursuits than hunting for new business and furthermore, of those that are actually suited to finding and closing new business, even fewer are suited to do it for your company. But wait, it gets worse. Even fewer still are suited to hunting in your company AND interested in joining you at the moment versus staying where they are or joining one of the many other employers that are also competing for their services.

Furthermore, the traits required to be a great hunter are hard to assess and many employers have trouble determining which candidates have what it takes and which don’t. Taken any sales team and look at the the individuals tasked with hunting. What you are likely to find are a mix of decent hunters and those better suited to farming who have been put in roles where it is folly to expect them to excel.

A Very Small Percentage of the Population
In the end you are looking at a tiny fraction of the population who are hard to spot, which explains why hunters are so hard to find. No wonder sales training and performance improvement is an enormous industry. Skipping the tough work of searching for hunters is the easier path to building a sales team. Except it usually doesn’t work. Proof of this can be found in the level of failure in the sales sector. Nearly 50% of reps are below target in many sectors and in some the stats are worse.

Always be Recruiting
So what’s the antidote? Simple. Never stop recruiting. Look everywhere and look often so that you increase your chances of being exposed to the mix of DNA that makes a great sales hunter and when you spot it, make sure you get it onto your team. Then set them up to succeed so it is a win-win relationship and they never want to leave you to work for another employer.

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Eliot Burdett

CEO at Peak Sales Recruiting
Before Peak, Eliot spent more than 20 years building and leading companies, where he took the lead in recruiting and managing high performance sales teams. He co-founded Ventrada Systems (mobile applications) and GlobalX (e-commerce software). He was also Vice President of Sales for PointShot Wireless.

Eliot received his B. Comm. from Carleton University and has been honored as a Top 40 Under 40 Award winner.

He co-authored Sales Recruiting 2.0, How to Find Top Performing Sales People, Fast and provides regular insights on sales team management and hiring on the Peak Sales Recruiting Blog.

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Yanik Silver Interviews Peak Sales Recruiting’s Eliot Burdett

Peak Sales Recruiting’s founder Eliot Burdett was recently interviewed by Internet entrepreneur and Maverick 1000 CEO, Yanik Silver.

During the 60 minute interview Burdett shared many aspects of sales recruiting and hiring mastery, including the traits of a an “A-player” sales achiever and why they are so hard to find, how to attract top sales talent to your company, how to save money on hiring, how to approach compensation, how to save management time and money by hiring sales reps that will perform in the desired role and belong in your company, how to assess and interview potential sales hires and how to ramp them up quickly once you have hired them.

Access the full interview of Eliot Burdett at the link below:
Interview: The Secret to Recruit, Hire and Motivate Superstar Salespeople

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Eliot Burdett

CEO at Peak Sales Recruiting
Before Peak, Eliot spent more than 20 years building and leading companies, where he took the lead in recruiting and managing high performance sales teams. He co-founded Ventrada Systems (mobile applications) and GlobalX (e-commerce software). He was also Vice President of Sales for PointShot Wireless.

Eliot received his B. Comm. from Carleton University and has been honored as a Top 40 Under 40 Award winner.

He co-authored Sales Recruiting 2.0, How to Find Top Performing Sales People, Fast and provides regular insights on sales team management and hiring on the Peak Sales Recruiting Blog.

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What Is Your Weakest Attribute? And Other Crazy Sales Interview Questions

We were recently putting together the interview script for a sales hiring project we are working on and I was thinking about some of the nutty questions that have been popular over the years.

“What would you say was your weakest attribute?” This is not an uncommon interview question and I can remember asking this myself back when I was a young hiring manager. I had replies ranging from the lame, “I try too hard” (but what did I expect?) to the forthright, “not having time for silly questions.” (She got a job, by the way!)

Not that long ago “cute” questions were considered illuminating and insightful. I am not quite sure what interviewers get from questions like that, but there was a time when, “how do you fit an elephant in a VW Beetle?” or “how would you move a mountain?” were popular. There is no “right” answer but how the candidate replied was supposed to shed light on the personality of a candidate and into how they would perform in a certain role.

Things have evolved since then and today we rely more on “behavioral interviewing” techniques; asking people to describe how they have behaved in relevant situations in the past. This line of inquiry gives us insight into how a candidate will react when confronted with a similar situation in the future. For instance, describe the activities you engaged in to open new accounts in your previous role or describe how you won over a customer that wanted to buy from an incumbent supplier. For a comprehensive list of sales interviewing questions, check this article out!

We also tend to avoid “imaginary scenarios” because they aren’t that useful for separating the weak candidates from the strong ones. For example, any sales rep can provide a great textbook answer to a question like “if you worked here, how would you open up a new account?”

Quirky questions might have a place in trying to see measure someone’s level of creativity or fit with an unusual culture, but for the most part they won’t give you much proof of a candidate’s ability to excel in the sales role for which you are hiring.

To your success!

Photo Credit: milos milosevic via Compfight cc

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What You’re Missing When You Hire Based on Resumes Alone
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Eliot Burdett

CEO at Peak Sales Recruiting
Before Peak, Eliot spent more than 20 years building and leading companies, where he took the lead in recruiting and managing high performance sales teams. He co-founded Ventrada Systems (mobile applications) and GlobalX (e-commerce software). He was also Vice President of Sales for PointShot Wireless.Eliot received his B. Comm. from Carleton University and has been honored as a Top 40 Under 40 Award winner.

He co-authored Sales Recruiting 2.0, How to Find Top Performing Sales People, Fast and provides regular insights on sales team management and hiring on the Peak Sales Recruiting Blog.

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6 Ways Not to Fire a Sales Rep

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The harsh reality of being in management is that along with the buzz you get giving someone a job and a chance to earn their living and work at something they (hopefully) enjoy, there will be times when you have to fire the very same individual and in sales unfortunately this invariably happens more often than in other company functions.

Whatever the reason for the termination of their employment, here are six ways NOT to fire a sales rep and yes, these are all examples I have experienced personally or recently heard about either from salespeople or from sales managers.

Here are 6 things to avoid doing when terminating a salesperson:

1. Send a termination message by text

It’s bad enough when you have to let someone go by phone either because they are remote and travel to their location is not feasible or because you are stuck somewhere and are forced to make a change on short notice, but via SMS? Our recruiters spoke to someone that was relieved of their duties this way and while I appreciate that no one likes to deliver a termination message live,  there may be legal issues with not providing a full and complete termination notice and it is certainly more human to have a call or meeting so you can address any questions the departing sales rep might have.

2. Neglect to be upfront as to why you are firing them

While saying too much could give them ammunition to fire back at you in a court challenge to their dismissal, telling them false reasons, even if it is to make everyone feel better about the firing, is wrong. It will only come back and haunt you. Whenever I have had communicate a termination, I have always couched the message in such a way that they leave accepting they were not suited for that role, but are still worthwhile individuals. Keep in mind that their ego is going to be bruised and they have to find a new job. Furthermore, if they give their new employer spurious reasons why they were fired and, when checked, the new boss discovers a different story, then that won’t help the departed staff member at all.

3. Try to make things lighter

You are doing something that is not pleasant, for you or them so don’t try to make it into something it isn’t. Now is not the time to try to boost their confidence with compliments that will likely seem insincere. You are changing their life’s course. They now have to find new employment and figure out how they are paying next month’s bills. Also don’t offer more help than you can give. You can be as helpful and supportive, but ultimately you are parting ways so there is no point in offering them more support than you are actually in a position to provide. Strike the right balance.

4. Tell them they are fired before securing company assets

This could be your price list, client list or some other proprietary information. Letting them go back to their work-station and log on to the company network might not be the wisest of moves. Except for a couple of times, I have always had a departing sales rep surrender company assets such as lap tops, mobile phones, cars and product information at the time of the dismissal. Even if there is no perceived security threat, it is an emotional experience for everyone and always best to err on the side of safety and in any event, it is always easier to retrieve everything in the moment.  In some cases, you will want to walk the person out of the office and as ‘Big Brother’ as it may look to other staff, having security or a more senior executive accompany them as they clear out their things makes good sense. How it is done is the key to everyone retaining their dignity and morale. The alternative, losing perhaps millions of dollars of company assets just to not ruffle the feathers of the dismissed employee often impacts unfairly on everyone else’s job security. Your call.

5. Forget “administrivia”

Upon termination, a departing employee will want to know what termination pay they will be entitled to and any trailing commissions. You need to have these answers and you will want to make sure you are clear on these prior to the termination meeting so you know what commitments you are taken on as a result of the dismissal.

6. Fail to be sympathetic

It is a big deal, most likely the biggest thing they have had to deal with in their time with the company. It will impact their life and the lives of their loved ones after you tell them they are fired. Over the years, I have had dismissed employees break down or express anger. As I said it is an emotional experience, so give them a moment to absorb and process the news.

Firing someone is never fun, but it can be done with dignity and respect for all concerned and move on to bigger and better things for all concerned. If you handle it well.

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Eliot Burdett

CEO at Peak Sales Recruiting
Before Peak, Eliot spent more than 20 years building and leading companies, where he took the lead in recruiting and managing high performance sales teams. He co-founded Ventrada Systems (mobile applications) and GlobalX (e-commerce software). He was also Vice President of Sales for PointShot Wireless.

Eliot received his B. Comm. from Carleton University and has been honored as a Top 40 Under 40 Award winner.

He co-authored Sales Recruiting 2.0, How to Find Top Performing Sales People, Fast and provides regular insights on sales team management and hiring on the Peak Sales Recruiting Blog.

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The Most Important Profession in the World: Sales

We have said it many times. The world’s second oldest profession has changed more in the last fifteen years than it has through all of time. Dan Pink’s latest book, To Sell Is Human: The Surprising Truth About Moving Others, covers this evolution and if you love selling as much as we do, you will love this book.

First of all Pink is not a salesperson, so you don’t get the typical rah-rah, salesmanship that you would naturally expect to find in a sales book written by a sales person. Pink is a business and management author that has extensively studied motivation and psychology so he has some degree of objectivity.

Some key points in the book:

  • We Are All in Sales – this has never been more true that it is now. while 1 in 9 people in the workforce are involved in traditional sales, the other 8 in 9 are engaged in non-sales selling and influencing others which consumes a significant percentage of work time.
  • Caveat Venditor – buyers have access to so much information and choice that honesty, fairness and transparency now rules sales over old school sales tricks and manipulations.
  • New Science of Selling – Pink proposes a new model for success in sales which involves creating meaningful connections and providing service.
  • The Value of Purpose – Pink shows how people don’t have to sell out to out sell.

If you sell or manage sales, or want to know more about the most important profession in the world,  get this book.

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Eliot Burdett

CEO at Peak Sales Recruiting
Before Peak, Eliot spent more than 20 years building and leading companies, where he took the lead in recruiting and managing high performance sales teams. He co-founded Ventrada Systems (mobile applications) and GlobalX (e-commerce software). He was also Vice President of Sales for PointShot Wireless.Eliot received his B. Comm. from Carleton University and has been honored as a Top 40 Under 40 Award winner.

He co-authored Sales Recruiting 2.0, How to Find Top Performing Sales People, Fast and provides regular insights on sales team management and hiring on the Peak Sales Recruiting Blog.

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10 Ways to Expand Your Sales Candidate Flow

One of the biggest challenges faced by hiring managers and sales leaders looking to hire is how to get exposure to top sales talent. Creating more sales candidate flow won’t necessary get the right person to show up at your door, but the more people you are exposed to certainly increases the chances that you will find someone that can help your sales team be more successful.

  1. Post Ads – there are many job boards that can raise the awareness about your open position and don’t forget Craigslist as a source of talent for certain types of positions.
  2. Linked-in – probably the largest resume database in the world, if you look for people here, you will have to be an expert at searching or you will be overwhelmed with the number of people with whom you are interested in speaking.
  3. Facebook – the largest social network in the world, so the chances are the people that you want are here.
  4. Competitors – If your competitors have a good track record and a similar culture then it is likely they have sales people that can help you.
  5. Outside your Industry – Look at the career history of your top performers – are some sectors a better source of new talent than others?
  6. Referrals – ask your network or even your customers who you could approach about your open positions.
  7. Networking – industry and social events are a great place to find sales people.
  8. Candidate Database – search through your database of people that have submitted resumes to your company for people that you have spoken to in the past that you may want to go back to
  9. Internal Referral Programs – existing employees can be a great source of new sales talent, especially when combined with some kind of incentive like recognition or a gift.
  10. Hire a Sales Recruiter – of course we are biased, but if you have tried some or all of the items on this list and still need to get to the right candidate, call us to leverage our large team of people that do this on a daily basis.

In many cases, the biggest challenge is that the great sales people that you want to speak with are unaware that your open role exists.  The purpose of generating candidate flow is to get enough candidates in front of you so that you are picking from the best that exist rather than the best that apply. To make the best decision, you need choice. Lots of choice.

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Eliot Burdett

CEO at Peak Sales Recruiting
Before Peak, Eliot spent more than 20 years building and leading companies, where he took the lead in recruiting and managing high performance sales teams. He co-founded Ventrada Systems (mobile applications) and GlobalX (e-commerce software). He was also Vice President of Sales for PointShot Wireless.

Eliot received his B. Comm. from Carleton University and has been honored as a Top 40 Under 40 Award winner.

He co-authored Sales Recruiting 2.0, How to Find Top Performing Sales People, Fast and provides regular insights on sales team management and hiring on the Peak Sales Recruiting Blog.

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Kick-a$$ Recruiting Strategy – Cheat Sheet VP of Sales

In the weeks to come we are going to address the various questions that a VP of Sales or CEO are faced with as they are looking at developing a kick-a$$, bullet-proof sales recruiting strategy and process.  These strategies will apply whether you are a VP Sales/CEO of a enterprise or a small company.

The topics we will ask and address are as follows:

  1. Creating a large candidate pool
  2. Developing pre-defined success criteria
  3. Defining an effective interview process (who does what & when)
  4. Conduct effective sales interviews
  5. Using tools and exercises to help you assess the suitability of candidates
  6. Pre-negotiating compensation before the offer
  7. Ensuring candidates are not counter-offered.
  8. Checking references and how do to a sales specific reference
 

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Connect:

Eliot Burdett

CEO at Peak Sales Recruiting
Before Peak, Eliot spent more than 20 years building and leading companies, where he took the lead in recruiting and managing high performance sales teams. He co-founded Ventrada Systems (mobile applications) and GlobalX (e-commerce software). He was also Vice President of Sales for PointShot Wireless.

Eliot received his B. Comm. from Carleton University and has been honored as a Top 40 Under 40 Award winner.

He co-authored Sales Recruiting 2.0, How to Find Top Performing Sales People, Fast and provides regular insights on sales team management and hiring on the Peak Sales Recruiting Blog.

Connect: