When you start building your company and selling your product, it’s all new and exciting – explaining what you see as the customer solution, negotiating futures and features, even asking for the order. If you are successful, you will soon look to expand your capacity to sell. Looking to hire the first dedicated sales person is a scary proposition. There are many questions that come up: some are important and immediately addressable like who are your customers, where are they located and how will you pay your sales team. Some will work themselves out over time like where should the resources be located; Near the customers or will they travel?
Figuring out and negotiating the compensation component is something that needs to addressed upfront. Understand that your sales compensation plan will change as your company changes. Your first attempt will not be perfect, however, if you think about it critically and build in some basic elements it can be an effective tool to grow your business.
Establish the value
You should have an idea of what you expect out of the resource – number of sales a month, total value of sales, or access to a new industry segment. Whatever you want them to do has to have a price – a value to the company. This value becomes part of the equation.
Also, establish what you are willing to pay for your expectations. An example of this would be a simple statement like “if my salesperson closes $1M of new business in the first year, it is worth $200K to the company”. This high level sizing will help you work through the value delivered by the salesperson relative to the cost to the company for their efforts.
Make it simple
There is ton of information out there on the potential elements of a sales compensation plan (like this post from Jerry Hegarty titled “100 of the top ‘Must Know’ Sales Compensation terms” ). You need to work to build a plan that serves your purposes.
The end game is that the company wants new customers and the salesperson want to be compensated for closing them, so base the plan on the value to the company and keep it simple. Optimally, it should be easy enough to be calculated on the back of a napkin after a long day.
Write it down
Since this person is tasked with selling, expect them to propose what they want. You want someone who isn’t afraid to ask for the order, so expect it to be a negotiation. Consider their requests and how they would fit into the structure you think is fair. Remember this plan needs to be an incentive for them to sell, be considerate of their wants and try to incorporate their input; it will empower them if they feel they have a voice. Once it’s agreed upon document it and have both parties sign the agreement.
This is important legally since it relates to compensation, but make sure to establish a timeframe for the agreement (say one year) and incorporate a mechanism to change the metrics (say quarterly updates) with agreement by both parties.
Make the salesperson successful
Asking a sales team to do “too much” is always a risk. Lars Dalgaard talks about focus in “Sales Compensation: Beware, You Get What You Ask for”. If the product is new and the market untested, make it easier for them to close their deals– don’t restrict their ability to sell based on price or contract length. I don’t advocate giving the product away for free and forever, but use the customers’ objections and requests as feedback on what to sell, to whom and for how much.
This customer input feeds back into plan revisions – if you were wrong at the beginning (value is different or metrics have changed) then you need to adjust the plan quickly so the individual and the company can be successful in selling. Lastly, since you want the individual to be successful, structure the payment of commissions monthly so they can see the impact of their efforts.
Remember, at the end of the day you want them to sell what you have for the benefit of the company. Paying them to do so if the purpose of the plan. Payment of commissions is their reward for a job well done so celebrate with them and you will both be successful.