Want to tune your sales organization for maximum efficiency? Matching the right payment system?and the right commission structure?to the job can make all the difference.
by Christopher Knight [September 20, 1999]
You're ready to build your first ISP sales team and you want to create an effective commission strategy. Or perhaps you already have an ISP sales team, but you're not sure if you're paying them appropriately. Today's article delves into strategies for paying your salespeople that produce optimum results for you, your sales reps, and your ISP.
There are three possible ways to pay ISP salespeople:
- Base-pay-only.
- Base-pay-plus-commission/bonus.
- Straight commission with a recoverable draw.
Each of these approaches has its own set of implications
Salespeople who are paid a base salary only?
- Tend to not be as motivated on a daily basis as those who are compensated on a commission or bonus structure in addition to their base pay
- Tend to be your marketing and/or sales assistants, typically performing many standard sales functions-except for that all-important cornerstone of salesmanship: asking for the order
Sales reps of less than topnotch quality may stick with you forever if you compensate them with adequate base pay. Top-gun salespeople paid this way, on the other hand, will quickly decamp to the first one of your competitors who offers them a chance to increase their income via commission or performance bonuses.
This is not to say that you could not have a profitable or successful relationship with a sales rep compensated via base pay only. If you choose this unconventional route, however, you must clearly define minimum expectations; if they don't meet them, you may have to consider letting them go.
Salespeople who get base-pay-plus-commission?
- Tend to be motivated on a daily basis
- Are able to sell without worrying that they need to close the next sale or go huhgry tonight. This allows them to focus more on the customer's than their own.
This is by far the most popular basis for compensating ISP salespeople: The base pay satisfies their basic security needs. The system rewards them with increased pay as their sales efforts (and results) increase, and it keeps their attention focused on corporate goals instead of the own selfish desire to maximize commissions above all.
Salespeople who earn straight commission with a recoverable draw?
- Tend to be highly motivated daily, are highly self-disciplined and are typically "A" type personalities.
- Tend to be either highly successful or near quitting, depending on their recent performance.
- Tend to focus more on selling what they need to sell than selling what the customer really needs or wants to buy.
- Have a hard time caring about the rest of their ISP team, as they typically only care about driving their commission up at all costs.
A recoverable draw is where your ISP advances money to a salesperson, to be paid back or "offset" by future sales commissions. This is a way to level the peaks and valleys in a typical straight-commission sales rep's paycheck.
If you decide to employ straight-commission sales reps, the law requires that you guarantee them minimum wage. It's important to keep this in mind when you're managing their recoverable draw. (For more on your local employment laws, check with your State Dept of Human and Labor Relations.)
Risk-Reward Relationships
From the sales rep's point of view, base-pay-only has the lowest risk, while straight commission has the highest. Base-plus-commission represents a broad middle ground. When deciding how to pay your base-plus-commission sales reps, you must calculate the risk/reward relationship, because balancing a high base with a relatively low commission, and vice versa.
How much should I pay them?
Typical ISP reps selling dialup service usually range from $18,000 to $35,000 per year base pay (depending on your location, their level of experience, and your ISPs ability to pay for different levels of sales talent) plus commission ranging from 1 to 7 percent. For salespeople on direct or straight commission, 10 to 15 percent of net collected revenue is typical, with 1 to 2 percent bonuses based on high performance.
Reps selling higher-end dedicated Internet access accounts or web development services are typically paid $24,000 to $60,000 as a base plus commission, depending on skill, experience, and performance.
Your goal is to pay less than 10 percent of your gross sales as your sales expenses. For example, if your sales team brings in $750,000 in sales, this should cost you no more than $75,000 in commissions/pay. The only time it would make sense to pay more than 10 percent of your gross sales is when you need your ISP to grow faster than normally possible, either because of the lifetime value of each customer or the recurring revenue stream you need to meet your plans.
What do I pay commission on?
The standard procedure is to pay commission on the basis of net collected revenue for the given pay period, never on the gross revenue. This helps to motivate your sales team to see that customers pay their bills. Otherwise you'll be paying your reps on the basis of billing that may remain unpaid or unpayable.
A note for ISP salespeople:
Assuming you'e paid on a base-plus-commission or straight commission basis, your goal is to maximize your commission amount. The size of your income is directly proportional to the volume of sales you close?the value you deliver. If you want to make more money, you must find a way to increase the number of sales you close and the amount of value you deliver.
In my opinion, there is no greater role within an ISP organization than being in sales. After all, nothing happens until a sale is made. Not only that, starting in sales is a great way to make it into upper management, or to end up leading a sales team of your own - while earning commission on the performance of your team.
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