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Thoughts on Sales Compensation

This post is entirely geared towards compensation for recurring revenue sales and encouraging recurring revenue. If your business is based on one-time sales please read this twice and worry about what everyone else is going to do to you.

The most important part of human behavior is to incentivize the actions you want to see. If your business is based on selling hardware, pay your sales staff based on hardware sales. If you need to sell hours, pay your sales staff based on utilization.

Keep in mind they will have to fight the same fight next month forever. Your sales staff is incentivized to sell people and product. That’s their frame of mind and what their sales manager is pushing them to sell.

I am not a great salesperson so I naturally moved towards recurring revenue – internet service, telephone service, and managed services. I could sell anything once but didn’t want to do the same thing every month to keep running in place.

There are many schools of thought on sales compensation. I designed mine to incentivize the actions I wanted. It was very simple — I set a minimum amount of new recurring revenue per sales representative per month and used that as a multiplier on their previous revenue.

In telecom a basic commission is 15% of the recurring revenue. When my sales rep that has a $3,000 monthly requirement and hits that, they will get $450 in commission each month additive. The requirement can be a positive or negative multiplier. If the sales rep sells $2000 in January their commission would be 2/3 of 15% of the recurring revenue.

As time progresses the sales rep can sell over their quota. This is a great problem. I’ve personally argued with sales managers about my plan and how it can become too expensive. As long as you keep increasing the base monthly requirement to adjust the payout you will be fine.

I am happy to pay a salesperson more than myself if they consistently sell and retain clients. As long as your margin math is correct you’ll still come out way ahead.

 

 

my recurring plan

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