If you’ve come this far and want to learn more about commercial salaries, it’s probably because:
- You are setting up a sales team and you want to define what the salaries will be.
- You are going to start working as a commercial and want to know what your salary will be.
In both cases, congratulations, you have come to the right place.
How much to pay a salesman’s salary
Hiring staff is always a delicate activity; you’ll have to work hard to make sure they fit in with the team and processes, you’ll have to make sure they feel comfortable and you’ll have to delegate tasks and responsibility to someone you don’t yet know.
But when it comes to an area like sales, you have to consider one of the most important points, what is going to be the salary?
It may seem that this section is just as problematic in the case of a commercial or any other position, but there is an important difference; while in most positions this is not the case, in the commercial area salaries are almost always made up of two items.
How a salesman’s salary should be composed
The vast majority of commercials are paid a fixed salary and a variable salary.
Overall, this remuneration model offers many advantages:
- It allows you to link the salary of your staff to the success of your company: if we win, we all win.
- It allows you to motivate your staff to the maximum by putting part of their salary in their hands only.
- It allows to reward the workers who best perform their job.
However, variable salaries also have drawbacks if they are not well managed:
- You can create anger or reluctance if sales targets are not met.
- It can create tension between the employees who are doing best and those who are doing worst.
If you want to ensure that you have a salary structure that makes the most of this form of remuneration without the drawbacks, you have to modulate the fixed and variable parts.
As should be the fixed salesman’s salary
If we had to define in just two words what the fixed salary of a commercial would be like:
The reasons are obvious:
If a commercial is doing badly in a particular month, whether it’s his fault or not (the company can’t get new leads, it’s low season, or something out of the ordinary happens, as in the case of COVID-19), you don’t want him to have any trouble getting to the end of the month.
The easiest way to avoid this is to set the fixed part of your salary at a reasonable level.
On the other hand, you don’t want the fixed + variable part to be a disadvantage compared to other colleagues, especially in other positions in the company.
To avoid this you have to set a fair fixed salary.
And what is a fair and reasonable fixed salary for someone in the sales department?
This will depend on many factors:
- Industry in which you work.
- Employee experience.
- Knowledge necessary for the job.
- Geographical area in which you work.
- Etc. …
I would like to give you a more specific recommendation, but without knowing each case in detail, it is impossible.
What the variable salesman’s salary should be like?
This is the big question that managers ask themselves over and over again. How do you set up the ideal commission scheme for a salesperson?
Firstly, to avoid the negative aspects of this remuneration system it has to comply with 3 principles:
- The variable must be transparent.
- It also has to be revisable over time.
- Commissions cannot have a ceiling.
Why does the variable salary have to be transparent?
The commercials are usually sharp and able to find 3 legs on the cat.
This is good, because it helps them do their job, but it can be problematic if your commission scheme is not entirely clear and leaves loose ends.
If you don’t set up a clear and unambiguous system, when it comes to calculating commissions, you and your salespeople will probably arrive at different figures and, however much you have the last word, friction will start.
Avoid this problem from the outset by setting up a very transparent variable salary scheme and explaining it well to each salesperson.
Should I periodically review the variable salesman’s salary?
Not only the variable, but also the fixed.
As time goes by, it is normal that salespeople reap better results by having more experience, knowing the sector better and having a more developed portfolio of clients and contacts.
This will make their profiles more sought after in the market and there will be companies willing to pay more for hiring them and, on the other hand, it will make them get better results.
In this scenario, it would not be fair to the company if its objectives were as low as when it started, nor would it be fair to the salesman if his salary did not increase as his profitability for the company increased.
And the best way to avoid this comparative disadvantage is by regularly reviewing wages.
One formula I like for these cases is to link the fixed salary to the variable salary of the previous year.
If, when defining the team’s variable salary, you want the fixed salary to represent 70% of the team’s total salary, you can link its revision of the fixed salary to the variable salary of the previous year.
If the first year he had a fixed salary of €20,000 and at a higher level he got €7,500 in commissions, if you want his fixed salary to represent 70% next year you should raise it to 24,500 euros
With this method you ensure that the salary and also the objectives evolve at the same rate as the commercial.
Is it a good idea to include floor and ceiling in the salesman’s salary?
The floor on commissions means that, if minimum sales targets are not reached, the variable for that month or quarter is not charged.
The ceiling on its part implies that, once a certain volume of commissions is reached, no more can be charged, even if more is sold.
While it is usually a good idea to include a floor in the commercial commissions to ensure minimum compliance, it is a bad idea to include a ceiling.
Variable salary caps encourage demotivation and save sales.
If at a certain point it is not profitable for the salesperson to sell more, he will probably not try too hard.
In addition, this encourages you to save sales at the end of the period to include them in the next month or quarter and go more relaxed.
As you can see, ceilings are a terrible idea.
How should I calculate the variable salesman’s salary?
First of all, you have to decide on what your commercials are going to charge commission on:
- Are the deals closed?
- Business volume?
Whether you choose one or the other will depend largely on your industry, your pricing policies and your salespeople’s scope for negotiation.
Once you have this clear, you will also have to decide whether the commissions are linear or fixed.
What would the linear commissions look like?
The salesperson would earn a % of their sales, their salary or their margin (depending on what has been set before) from the moment they reach their target floor.
What would the fees for each section be like?
In this case, the commercial would also gain a %, but the amount of this % would increase as the results of the commercial increase.
Real example of a salesman’s salary
To see it clearly, I’m going to give you an example of SumaCRM that I like very much.
There, an inexperienced salesman starts out with a basic salary of €18,000 + a variable.
The variable is 50% of what your company win in their first month of the new customer.
Thus, if one month they achieve 1000 euros in sales, the salesperson will earn €500 in commission.
Furthermore, at Suma they want a salesman’s commissions to represent 50% of his salary. Thus, if that same salesperson achieves €10,000 in commissions in his first year, his basic salary would increase to €20,000 + commissions for the second year.
And that is all
With this study and all this information you already have everything you need to set the salary scheme of a commercial team. If you also want them to be successful, then you should accompany them with a CRM!
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