You have enjoyed a glorious career as a top salesperson but now it’s time to join the ranks of management. Sadly sales management coaching is thin on the ground. General consensus – You were great at closing deals so you will excel at mentoring salespeople to close deals, right?
Well one place to start is to ensure your sales team are motivated with an attractive financial package. I’ve noted some helpful tips that will get you thinking along the right lines. I’ve also included a link to a worked example illustrating a simple structure.
- I like the On Target Earnings (OTE) approach to life. The first step is to determine a reasonable $/£/¥ annual target for each product or service offering that you need your team to achieve. You can then allocate across the months and by sales professional. You now have an individual sales target, by product, by month.
- Next you need to determine the mix of package between base and commission. Again your choice but psychologically there is something motivating about the double your money mentality. E.g. say base of $115,000 is offered to an outside sales professional, he or she can achieve another $115,000 for hitting their target. I would leave this uncapped.
- Because you know the desired sales target number for each business line and you know the commission figure you are trying to reach, it is quite simple now to establish a % commission rate by product line. You can keep this as a flat % or vary it depending on the business objectives. In the worked example I’ve assumed a slightly higher incentive for products V services. Worked Example is here.
- I’ve made some points on the spreadsheet, specifically by doing granular target setting by product you can discover for example that a high performing salesperson has a blind spot with a specific product. Could be a training problem or a product problem.
- One of the issues to decide is how generous do you want to be with OTEs. One rule of thumb you might find useful is the following – the ratio of Sales to OTE. An outside salesperson who closes deals at $100k on average, should be delivering 20 deals a year, thus $2m in sales and be paid $200k. Ratio of Sales to OTE, 10:1.
An inside sales professional might have say a $650k target, made up of 65 deals at $10k on average and be paid an OTE of $130k. ($65k base, $65k commission). Ratio of Sales to OTE, 5:1. Still an attractive proposition for all involved.
- By the way in my experience some things just don’t work:
- Junior sales people with junior targets feel like second class citizens
- Player managers with personal targets and team targets struggle
- Linking commission to cash collection is solving a problem with the wrong instrument
- Assuming someone can hit normal targets in the first three months of their onboarding
- However the following often work very well:
- Building monthly rolls of honor, displayed on white boards and rewarding winners
- Offering unexpected one off rewards for Blitz days, highest # of calls, appointments, webinars
- Offering product champion bonuses for the quarter
- Building regional competitions between offices
- With deferred revenue models e.g. SaaS, apply DCFs to the revenue stream, with an aggressive hurdle rate and pay commission on the annualized deal. (paying a little commission every month over 12 months loses its objective)
- Where maintenance & product streams coexist, offer a higher commission on products if the maintenance % is achieved in the quarter.
- Often a gift certificate for a special action is worth far more than its monetary value
I hope some of these help. Please share some techniques that worked for you.