Salespeople are the backbone of any sales plan, and their compensation is the penultimate piece of this course and one of the keys to retaining and attracting talents.
And unlike other positions where pay scales and tables are simpler, salespeople are one of the most complex:
- Should they have a variable salary?
- What should the percentage be?
- Is there a ceiling and a floor?
- Should all sales representatives follow the same pattern?
As you can see, there are a lot of interesting questions we can ask ourselves when it comes to defining the remuneration of a salesperson, and in this article we will try to answer them.
Should offers for salespeople include variables?
To begin with, and in my opinion, variable pay should exist for almost every position in a company :
- It increases employee loyalty.
- It is a way of encouraging meritocracy.
- It results in more motivated employees.
However, for many roles, it is really difficult to define variable schemes based on tangible results for companies.
This is not the case for salespeople. Given the contact with future customers and their conversion, it is easy to set variables based on their results.
This is why we believe that salespeople should always have a percentage of variable pay.
In addition, we believe that this variable should be public for everyone. Hiding the salaries you offer and your variable schemes is the easiest way to scare away talents.
Don’t do it.
What percentage of a salesperson’s pay should be fixed and what percentage variable?
We have already decided that a salesperson’s remuneration should be part fixed and part variable.
But which parts? The answer to that question is a classic “it depends”:
- It depends on the market (b2b or b2c).
- The industry.
- The country.
- The position.
In our opinion, the latter segmentation is the most relevant, which is why we approached this question on this basis, with 3 positions in mind:
- Sales manager.
How much should a junior salesperson be paid?
Young people by definition have less experience and knowledge of the market, so they need more modest objectives.
How does this fit in with variable pay? “A junior is growing and you can’t ask for big results, so their fixed pay should be the main part of their income.
I generally recommend guaranteeing a 10% variable in the first 6 or 12 months (depending on the product sales maturity process) and from then on they should earn it.”
Santiago’s approach is very interesting: it is not fair to demand the same results from a junior as from a senior and, therefore, to offer them the same % of variable. “To define the remuneration of a junior sales person, you have to take into account the industry, the market and the geographical location, but I will take an example for LATAM: Your fixed salary will be around $800-$1,400 per month and your variable will start as soon as the sales person gives back to the company 6 times your expenses, including social security etc.
From there, you can earn a 1% commission on the sale, which will allow you to reach the goals the company is looking for, without limit.
Always make it as simple as possible to understand to avoid future problems.
Oscar mentions two other very interesting ideas:
- The variable should have a floor (in his opinion, at 6 times his expenses) to prevent him from taking additional commissions if he is still not profitable for the company.
- Sales people should not have a ceiling. Otherwise, it is a great way to demotivate them or encourage them to save sales from month to month.
“In my experience, compensation for the achievement of professional goals is one of the most important points to ensure that the people who have to undertake them are motivated and do not lose energy in achieving them.
Also for juniors.
This reward should not only be monetary, there is also an “emotional reward” that strengthens the commitment of our employees.
In the case of younger people with less sales experience, it is necessary to provide them with training. Unfortunately, very few companies have a real growth strategy for their employees.
It is therefore essential that the people who offer our products or services know how to help customers, including sales techniques and sales strategies that suit them.
In my experience, this cannot be achieved without personal development and professional leadership training, often reinforced by coaching or mentoring. I believe that for them to be optimally engaged in achieving their goals, guidance from mentors who share the values of the business (and therefore its leaders), is key to sustained business growth.
I consider that this emotional remuneration is complementary to the fixed part, so depending on the value of the person giving it, it will be more or less added to the monetary remuneration.
On the variable part in monetary form, it is recommended to reach at least 50% of the SMART business objectives (specific, measurable, achievable, relevant to the company and within a given timeframe or period).”
Iñaki highlights another very interesting aspect: In addition to fixed and variable pay, juniors receive non-financial remuneration in the form of training, coaching and mentoring.
How much should a senior salesperson be paid?
People with more experience have a greater capacity to do business, but as a rule their fixed bases are also much higher.
Santiago and Oscar talk about how they would approach their remuneration. “The experienced person should have the opportunity to earn a lot of money based on their contribution – and the contribution they made in the past.
Generally speaking, I’m not a big fan of 90/10 relationships which, although I like them in the case of juniors, I find very uninspiring and, in the long run, tend to lead to accommodation.”
One of the keys to define in the case of senior sales people is whether their variable pay (and therefore their performance) also has an impact on their fixed salary.
For example, if their fixed salary is €30,000 and last year they received €35,000 more in commissions, for the following year they increase their fixed salary to €35,000.
Thus, variable pay is doubly motivating: it marks a one-off extra income and your future fixed salary. “A senior salesperson is more suited to a sector in which you need to be able to interact with the C-level.
This is why this type of salesperson is very common in the SaaS sector or in sales worth more than $10,000.
At LATAM, these profiles have salaries that are around $1,800 to $3,500 per month, and here the target is much more aggressive to achieve, and they start earning commissions of over 7 times their expenses, with an increasing percentage of say 2 to 5% on the sale, depending on the results and the sector.”
For Oscar, senior profiles should have higher fixed and even more variable opportunities than juniors.
In exchange, their floor is more demanding and they will have to sell more to unlock the commissions.
How much should a sales manager be paid?
The sales manager is not only responsible for his own results, but also for those of his team. This makes his variable remuneration more complicated. “In the case of the sales manager, his job is not to sell, but to create the right environment for his team to do so, and for that it is very necessary that everything else goes in the same direction:
- General company policy
- Organisation and human resources.
- Production resources.
- And so on.
So I think his percentage of variable should be the same as the rest of the executive committee.”
I particularly like this approach in the case of sales managers of very large teams whose activity is almost limited to team management rather than sales. “In the case of sales managers, this will depend very much on the sector and the complexity of the sales structure.
To give an example: if they have market research, SDRs, accounts and farmers, where they have to have a manager at the beginning and end of the funnel, the fixed remuneration will be between $3,000 and $6,000, and their variable will be set by the team target, where they will have to achieve a minimum of 80% commission on total sales.
From then on, there is no ceiling.”
For Oscar, the type of team is also relevant, it’s not the same as a sales manager managing 5 people as someone with 20 people in charge of different tasks and a super elaborate sales system.
The latter should have his variable determined mainly by the functioning of his team, not by him. “In the case of managers, the remuneration should be 100% variable, with 50% for their own company objectives and 50% for the objectives of their team, so that they are involved in the training and coaching of all the people under their responsibility.”
For Iñaki (and I totally agree), one of the keys to a well-functioning sales department is the supervision of juniors and the support of the team, which is reflected in the way he structures the commissions for these profiles.
And what about the fixed salary of a salesperson?
The fixed salary is another matter.
Like the variable, it is linked to the market, the sector or the geography, among other things.
However, as it is not relative, it is more difficult to give general recommendations.
Santiago’s view on this subject is categorical: “My opinion is that the remuneration seems to me to be very low for the work that these professionals do”.
Oscar draws some interesting conclusions: “On the fixed part, there are so many variations… I’ve seen startups that, in order to steal sales talents, almost offer director’s salaries to senior managers.
I think a sales manager needs to make sure the team is performing, and that’s where you could invest in a higher fixed, and for the sales person certainly the variable should be juicy, where if you get results it’s at least double your fixed.
I’ve had cases where the sales person has been able to quadruple their remuneration through their commissions.
I think that a 20% increase in the most frequent salary could attract excellent talents.
However, variable pay is still the carrot that needs to move salespeople.”
Iñaki’s opinion follows a similar line to Santiago’s: “Even today, many companies continue to apply an obsolete remuneration system, inherited from the industrial revolution, where money is exchanged for time and not for value to the company.
However, a 100% target-oriented remuneration model for managers and senior staff allows for sustainable growth of the company and even a share of the company.
The challenge, of course, is to define a correct and fair definition of the objectives and their fair remuneration.”
And that’s it for today
This concludes the penultimate lesson of this Key Account Sales Course.
Next week we will tackle the last one.
What’s the topic? It’s a surprise.
If you don’t want to miss it, leave your e-mail here and I’ll write to you as soon as it’s published:
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