Sales commissions are a tricky thing. Once you put them in place, it is difficult to change them without the sales team being demoralized that their compensation is going to go down (even if it isn’t!). The goal, generally, is to minimize base salary and maximize performance based compensation. Here are some thoughts on strategy:
- Align company interests with the commission (e.g. have commission percentages based on the profitability of the item being sold such that things like license revenue have a higher percentage commission than services revenue)
- Significantly reduce compensation if quota isn’t hit (e.g. cut the standard commission in half if quota isn’t reached for the designated time period)
- Don’t limit the up-side (e.g. don’t put a cap on the maximum amount a sales rep or account manager can make)
Sales, and management of a sales team, is one of the most difficult, and rewording, aspects of a business. Good luck!
My younger brother is a first year student at Harvard Business School and was recently discussing a case in class on Jack Welch’s management style. After 35 minutes of discussing the case, the professor surprised the class by having Jack Welch come in personally and answer questions. The key message by Welch was that of the four types of employees and what you should do with them:
- High performer that buys into the corporate culture — promote and empower them as much as possible
- Low performer that doesn’t buy into the corporate culture — fire them as quickly as possible
- Low performer that buys into the corporate culture — give them a second chance in a different position to see if they can be an ‘A’ player
- High performer that doesn’t buy into the corporate culture — do a public hanging where you fire them and then discuss with other managers their short comings
Of course, the last two types are the ones that provide the most difficulty for companies. I thought it was an interesting perspective from a very decorated business person.