Hi, We are a start-up software company, that sales software for facial image analysis (.e.g., face recognition). I am looking for sales people, and I want to compensate 100% based on their sales. I thought to compensate as follows: 1) If they find potential costumers and I close the final deal, then I give them 5% of sales. 2) If they finalize the contract with the company, then I plan to give them 15% of net sales. Does it makes sense? Thanks
I would be careful in compensating only by commission. This will give you the kind of sales reps you might not want. If you were to invest your time, would you not want to receive some kind of fixed fee for the invested time?
Also, by paying commission based, you are telling the sales guy that you don't know if the product will sell, but that you don't want to be the one risking the time invested.
I'd go for a mix.
Yes, it makes sense, the 5% is for lead generation, the 15% is for lead generation and closing the sale. The issue is that when strictly on commission you may get some very pushy sales people, unless your product is just part of an array of products they offer.
Have you researched your competitors to see how they compensate? And what level of sales pro are you seeking, seasoned or newbie?
If you get sales pros with clients at their fingertips they may be able to make faster sales and deserve to be paid a base + commission. Alternatively you can do a draw against commission, whereby they are paid a salary but that is paid back by their early commissions. It does ensure they don't go hungry.
I've worked draw against commission in the past, was uncomfortable with straight commission until I was an expert in the industry.
You may also want to do something obvious and ask them how they want to be compensated and see what you hear. I am an advocate of asking the market instead of guessing.
As someone who has his own business development agency and also advises on Business Development, I will only share how I would feel towards such a proposal.
If we are partners, than it is 15%; and at the start, yes, I expect you to close the sale, as I am learning your product and your closing techniques regarding this product.
I believe your biggest problem is finding the right people; I don't believe you should spend much time on figuring out the perfect compensation plan.
My advice, go with 15% and spend the time in getting the right people and invest in helping them succeed by remaining motivated.
I know, a lot tougher and time consuming than a few percentiles.
I'd make sure you have a process in place in Salesforce to ensure there is a line in the sand regarding the difference between a lead and sale. I've seen issues come about if there is no set process in place, resulting in a grey area.
Also, I'd consider having a variable commission structure.
$0-$50K = 10%
$50k-$100K = 12%
$100K - $200K = 14%
$200K - $300K = 16%
The more a sales a salesperson brings in, the more commission they should make.
Salespeople receive a salary, but also a bonus if target quotas are met. There is more incentive with this approach, but once again, good salespeople may prefer being paid a commission for each sale. Salespeople receive a fixed annual salary, so they have a predictable cash flow, but also receive a commission on sales. Under this plan, there is no base salary, so salespeople are compensated only on sales. Pay is not tied to hours worked, so some salespeople may have to work more hours to generate enough income. Although this plan is based on commission, salespeople receive a draw each pay period to help with their personal cash flow. Under this plan, salespeople may receive an initial commission for a first sale and perhaps a smaller commission if the customer continues to order.
You can read more here: https://www.thehartford.com/business-insurance/strategy/sales-team/sales-compensation
Besides if you do have any questions give me a call: https://clarity.fm/joy-brotonath