Determining the correct compensation for a sales representative is both an art and a science. Balancing motivation with profitability is crucial. This blog provides a deep dive into how you should approach sales rep compensation.
Who Is Paul Cissel?
Paul is a seasoned C-level executive with 40 years of IT industry experience. He spent the first 15 years of his career in roles of increasing responsibility, from Sales in a Fortune 500 IT company to CEO for a venture capital group working out troubled investments. Since then, he is the serial founder of three startups, each of which was successful exits to Strategic industry companies with Venture/Private Equity backing. He is currently the Exper In Residence – Growth & Acquisitions at TMT.
The Basic Premise
When thinking about compensating sales representatives, consider the following criteria:
- Ensure they close deals at the company’s predetermined price.
- No unauthorized discounts should be given.
- They should strictly adhere to the company’s target customer profile.
- Using the company’s preferred technology stack is non-negotiable.
- They should sell only products or services they are authorized to.
Experience And Salary Correlation
Experience in the field plays a significant role in determining compensation:
- 1-3 Years: Sales reps in this bracket, on average, earn about $46,000.
- 4-7 Years: If they have consistently been with the same company, they earn around $102,000.
- Top Performers: These individuals can command salaries of $155,000 or more.
Base Pay Vs. Commission
The foundation of any sales rep’s compensation is their base pay. This should be enough to cover their essential needs, ensuring they’re not overly stressed about daily living expenses. Commissions and bonuses, on the other hand, should be structured in a way that aligns with the company’s profitability and growth objectives.
It’s essential to align payments with the company’s service gross margin. This ensures that the company remains profitable while fairly compensating the sales rep. Avoid variable margin payments that are solely dependent on deal outcomes, as this can be unpredictable and unfair.
Project Sales Vs. Assessments
Differentiating between project sales and assessments is crucial:
- Project Sales: Avoid having sales reps, especially those new to your company, focus on selling projects, particularly those without recurring revenue. These might appear as quick wins but can be detrimental in the long run.
- Assessments: Emphasize the importance of selling assessments. These provide in-depth insights and can be a stepping stone to more extensive, profitable deals. Best-in-class companies often start their sales reps with selling assessments, leading to larger sales down the line.
Compensating sales reps requires a strategic approach. By considering experience, balancing base pay with commissions, understanding margin dynamics, and emphasizing the right type of sales, businesses can ensure a motivated sales team and achieve desirable business outcomes.