You’re paying your sales force too much if you’re giving them a significant salaried paycheck. Their salary should be just enough to cover their food, gas, and overhead costs, with their checks based largely on sales, not salary. The key is to design an effective commission rate that favors new business rather than old.
For instance, you may want to pay your salespeople two percent residuals on existing business but 10 percent on new business. This incentivizes them to move out of their comfort zone and push for fresh business. It keeps them hungry and aggressive in pursuing more leads, prompting them to go into work early and leave late. Essentially, they shouldn’t be living comfortably off their paycheck alone. They should be inspired to go out there and constantly be bringing in new clients because they have to.
Inc. calls this the “you eat what you kill” approach, whereby compensation is largely dependent on what your salespeople sell. This works well in any business as all business is dependent on sales and new clients. Every salesperson should be working towards his/her commission and the compensation should emphasize this concept.
Three Big Mistakes
Failing to compensate a sales force based on the commissions they’re bringing in is the first big mistake of entrepreneurs.
The second big mistake is failing to pay your sales force as a function of new business rather than repeat business. Existing customer bases are great. However, new business is new lifeblood; it’s growth. Repeat business just means you’re maintaining the status quo. Growth has stagnated. Existing business clients must be serviced and supported and this should take some of the salespeople’s time and effort, but at a lot lower commission as the sale has already been made.
Pay low and earn high, stacking the commission against new business rather than old.
The third mistake is failing to recognize and reward the efforts of your sales team. Because salespeople are naturally competitive with big egos, they have a need to be recognized by their bosses and peers. This is why it’s in your best interest to fuel the fire with sales contests.
- The prizes should be valuable, measurable and noteworthy, such as cash, or a possession such as a very expensive pen or even a weekend away with their spouse.
- Find ways to spread the wealth. Contests can be structured in many different ways, such as by rewarding the highest ratio of sales calls to closings or maybe the single largest dollar sale.
- Team rewards are also a great approach if you have enough salespeople to create teams.
The key is to be creative in coming up with unique ways for your sales force to earn prizes, be recognized and be honored.
This will motivate them to go above and beyond their usual approach, keep them out of the ruts that so often plague overpaid sales departments, and keep them hungry for more.