[EDITOR’S NOTE: VITAL is in its second year of monthly CI Business Mastery Classes where it addresses important CI business topics via webinars. Each class is supported by an industry brand. Each class is supported by an industry brand. VITAL has agreed to share some of the information from these classes in a monthly column of highlights from its most recent webinar. The topics are the same as the previous year’s classes, but the content is refreshed. This CI Business Mastery Class was on sales comp plans that work, and it was supported by World4Solar.]
This month, we are discussing best practices for hiring salespeople, VITAL’s philosophy on what sales compensation plans should accomplish, and the key elements that should be included in an effective sales comp plan.
Of course, we can’t dig into comp plans without touching on some hiring best practices. It’s critical to eliminate voodoo hiring practices, which is when companies hire based on subjective feelings or unconscious biases, often leading them to hire for skills and fire for attitude or personality. You need a hiring process that is objective not subjective.
It’s very important to be clear on what is needed in a salesperson — not just from a skills perspective, because skills can be taught, but more from the perspective of attitude and culture fit in your organization. We encourage the use of assessment tools like Culture Index, but there are many personality profiles out there. These programs are not perfect, but they’re absolutely another data point that helps to eliminate voodoo hiring.
A solid onboarding plan will not only help the employee, but it’ll also help the company to ensure that there’s an ideal fit in a short period of time. You have to quickly assess whether if this the right person for the job — especially in sales, as these are highly compensated roles. In many cases with salespeople, you’re going to need a reward activity before you can reward sales results. In very few cases will a salesperson be able to come in, light the world on fire, hit their sales goals within 90 days, and you’ll be like, “Hey, this is great!”
What does rewarding activity look like? Well, if you’re hiring a business development person, they need to go out, have meetings, outreach, maybe social media. Whatever it is that your business does to generate those new leads, that’s activity. Business development in our industry takes quite a while, so you will be able to reward on the activities before you’re able to reward on results from those activities. Be impatient with action and patient with results.
Building a Better Comp Plan
Comp plans should be fiscally responsible for the company. Look at this from all angles and make sure that these comp plans hit the mark so that the company doesn’t have to sacrifice profits, or worse. The sales comp plan should also not be complicated to administer or understand. A good test for this is to ask your salespeople to explain your comp plan without looking it up. If they can’t explain it off the top of their head, it’s too complicated. By and large, salespeople are motivated by the excitement of the sale and the money that comes along with it. If they can’t easily understand the upside, you risk losing some of their motivation. Finally, the comp plan needs to be fair to everyone involved — salespeople, customers, you…everyone.
Here are the key elements to a good comp plan:
- A Base (Salary or Draw): The base salary should be commensurate with the amount of non-selling duties, such as networking and business development. The more non-selling duties they have, the higher the base pay should be.
- A Commission Component: No surprise here.
- Profit Threshold: There needs to be an expectation of profit and a threshold that must be met for all new projects.
- Defined Sharing or Splits With Other Staff: A great comp plan also addresses how sales might be split with other staff who are involved in the sale.
- How and When Paid: Clarity on how and when the employee is paid is crucial, especially for variable compensation such as bonuses or commission.
Of course, every salesperson needs a quota. Ideally, you want to lay that quota out monthly and annually. The expectations of these quotas must be clear and they must be created in collaboration with the salespeople. If they’re brought into the conversation and it’s a collaboration, you can still push the boundaries, but they need to be able to see any plan as an achievable goal.
Commissions should be paid on cash collection. So, for example, if you collect a 50 percent deposit for a job, that’s half the commission for that project for that salesperson. This aligns the salesperson’s motivations with your company’s motivations and gives them the inspiration to stay on top of that customer relationship.
During the training period, you might need to provide some guarantee or some training pay. You could still have a commission or a bonus but make that around the activity because they may not have the tenure yet — either in the industry or with sales — to produce results in that first 90 days, but you still need to figure out if they’re capable of.
We suggest paying the commissions after the middle of the following month because it gives you a chance to work through all your accounting from the month that was just closed.
When a salesperson is producing less than $1 million in revenue, you’re going to need a sliding scale. The total target compensation should be 8 percent up to $1 million and 7 percent after $2 million. The key is to manage your salespeople who aren’t producing at least $1 million in sales per year. They are truly underperforming, and it’s hard to make financial sense for paying them what they are likely to demand to do the job.
Salespeople Gotta Sell
Here’s the big reveal of success: Productivity is a measure of revenue per unit, so the highest producing salespeople will be the ones who are not tied down with project management, design, proposal rendering, parts running…all that stuff. You want to try your best to free up their time so that they can get back to doing what they do best.
Also, remember that salespeople should not have the final say on bid profitability. They should also not have the ability to flex on margins because selling based on price is not selling, it’s clerking.
You must have sales skills in order to sell a project at a premium price and do an amazing job. You should have a clean intake process that removes that whole friction in their day. And then you as a company should define the assortment, not the salesperson.
For more information about the CI Business Mastery Classes and the other services VITAL provides, visit http://growwithVITAL.com.