Sales Commissions are not rocket science

Interesting article over at Inc. from a business owner who believes the standard commission compensation structure for sales people is bad. A lot of what he says makes sense. However, since most companies will continue to pay on commission, here are a few hints to make the process work better.

• Learn how to use a spreadsheet. We want to trust our employer, really we do. Yet, somehow businesses that routinely submit thousands and thousands of pages to the SEC for some reason get really confused by a spreadsheet no more complicated than revenue (X) commission percentage = paycheck. If I feel compelled to spend excessive time tracking every penny I earn because the payroll dept can't, something is wrong.

• If you are going to screw with the payroll system, test, test, and test some more. I've been through two "upgrades" to Oracle Financials. Both failed. One was with a small enough employer that they could export from the $1.5 million dollar Oracle system and calculate commissions in a spreadsheet, the other was a very large company that just stopped paying commission for six months until they figured it out.

• If you can't explain the comp plan on one Powerpoint slide its too complicated.

• Sales people sell exactly what you pay them to sell. If you have 100 products and one has an exceptionally high commission structure, don't be surprised when that product's sales take off, often at the expense of other products.

• Quotas have to match sales cycles. Monthly quotas for products with a 3-6 month sales cycle don't make sense.

• If you want your Sales Force Automation project to succeed it had better help the sales force sell. We don't care if it makes management's job easier. True story - a former employer spent $20 million on a Siebel rollout that has less functionality than an old DOS version of Act!.

• There is no such thing as a sales job with a base salary of $30K and expected first year earnings of $150K.

• If I can't remember the deals I'm being paid on - you are taking too long to pay commission.

• Lost deals are not always the sales person's fault. Sometimes the competition really is better, sometimes you get beat on price, and sometimes your product or service just sucks and no sales person is going to be able to sell it consistently.

• A sales person that has made six figures consistently will not join your firm for a base salary of $30K. We are showing a lot of faith by betting our career and earnings on our ability to sell your products, often in the face of numerous bad management decisions that make the job excessively difficult. Return that faith by offering a base that allows our kids to eat balanced meals while we ramp up at a new job.

Generally speaking, base salary should be about 1/2 of expected earnings. nobody should be living it up on their base, we are paid to produce revenue after all. However, somebody worried about his next mortgage payment is not going to be a particularly effective employee. The fact is individual sales go bad for any number of reasons, many which are in no way connected to the effectiveness of the sales effort. The base salary should let your sales force eat in those months.