Sales · Product Marketing

Any advice on commission-only + equity sales hires?

Vanessa Ferragut

July 19th, 2015

We're a bootstrapped startup looking to hire sales people. While we're starting our Seed round, we need sale people to help us continue to grow and sell. We can't afford a salary right now, but a mentor suggested a commission-basd and small equity arrangement.

What is your feedback on this? How much commission would be acceptable? And is equity for new hires sales people a good idea? (Vested over time or upon completion of deliverables)

Thanks!

Patrick Pease

July 19th, 2015

There are a lot of questions to answer:
How long is your sales cycle? B2b tends to have looong sales cycles and as a sales person I can't wait 3- 16 months to make my first sale, plus often 30 days for payment.

What is the commission? Less than 500 per week reasonable earning power will get you veryhigh turnover.

How do you support your agents? Do you provide a crm,  Sales coaching, leads, advancement, (virtual) assistants? Support shortens the sales cycle and reduces turnover a great deal. 

All this being said I own several sales organizations and commission is my favorite, maybe with a small draw for long sales cycles.

Rob Underwood Advisor and Entrepreneur

July 19th, 2015

I agree with Patrick. It really depends a ton of what product/service/offering is that you're selling? B2C vs. B2B? One time sales or recurring services (e.g., a monthly or annual contract/subscription)?

One model for experienced sales professionals going after larger size B2B order sizes is a declining commission. Let's say you're doing B2B and selling a recurring service (e.g., a software contract) for $10,000 a year. A commission structure for a senior sales person of 15-20% for years one and two, 10% for year three, and 5% for year four might work coupled with a typical advisor start-up equity stake (e.g., 1-2% with 36-48 month vest). Obviously this can be adjusted -- idea is to make this attractive to a sales person but you also don't want to be paying them forever. Of course, as Patrick says, if the sales cycle is really long, even that commission scale might not be enough to make it interesting for a professional sales person. A smart sales person will think of each contract from a P/L perspective for themselves as an individual and will consider how much labor of theirs will go into to earning a $1,500 commission.

Note this is not the model I'd suggest for "agents" selling lower order size items, especially in B2C. 

Vincent Roazzi Principal at JPM Partners, LLC

April 18th, 2016

With all due respect folks, as long as you keep looking at salespeople as employees you will never build as successful a sales department as is possible in your company and industry. Why? Because Sales is a profession, not a job. It's also the highest paid profession in the world.

I regularly read the comments from CEO's whose startups have failed, and although they cite many reasons, 95% can be traced back to insufficient revenue, that is, lack of sales. And some of them had great products/services. They hired the wrong "salespeople." Probably because they viewed Sales as a job and filled the slots, not knowing that many "salespeople" are really good at selling themselves and little else. If you are not a sales professional then you'll have as much success as if you were trying to hire a doctor, lawyer, engineer, architect, accountant, etc, without having the experience to do so. Get professional help! Because no matter how great your product is, or how innovative and gifted your management team is, without revenue those great advantages are worthless.

If you cannot show a professional salesperson how they can make $500K plus in a few years with you and eventually cash in when you do then you won't get the superstars that can make all the difference in the world to your organization. I've managed many $500K+ salespeople in the five startups that I helped build in the 25 years that I've been in Sales, and some of them were even making $1mil+! And we built multi-hundred million dollar and multi-billion dollar companies all of which had successful exits. And everyone shared in those successful exits accordingly. What was the secret to all that success? The owners/CEO's made the Sales Dept. the center of the universe for their company. They realized that nothing happens until a sale is made and no one has a job until there is revenue coming through the door!   

And to answer the equity question, you give all the employees and especially the key people a vested interest in your success. Owners work differently than employees and management should constantly remind them of their ownership. No one becomes successful by themselves

Manu Pillai Experienced Executive, Technology and Operations driven

July 19th, 2015

In my mind, you bring on a sales person when there is a sales template - there is a clear and proven value proposition, and you are now scaling. But, in such an early stage, are you scaling? Or still looking for the right fit? 

If scaling, then figure out a deal with a rep firm that has the right contacts, as you may not be able to generate the income a f/t sales person needs. 

And if not scaling, then the founding team needs to get deals done. If not, you will loose time in "teaching" the sales person, even though you are still tuning your model. 

Vincent Roazzi Principal at JPM Partners, LLC

July 19th, 2015

You are the exact reason why our company is in business. Go to www.jpmpartners.com and find some insights. 

Richard Harris Top 25 Inside Sales Leader, Public Speaker, 40 Most Inspiring Leader, Sales Trainer, Start-Up Advisor, SalesHacker

July 19th, 2015

You do have a lot of great advice and definitely you want to make sure you have answers to these questions. Not just because you need to know but also because any sales rep you will interview will want them too. 

My question is why do you think you need a sales person at this stage? Also I would suggest asking any seed VC's, advisors, or mentors what they think too. 

Alex Kim Tech @ Chatgrid

July 19th, 2015

I saw hiring/scales sales done by sales head at previous company, at that time I thought that is easy. But it's really hard (at least for me ) when I am trying.  Even  to build sales playbook, I should have couple of deals to find gaps and fill the contents (e.g. lead gen. source, sales pitch, value prop, RFP templates, quoting, eula, sales process management ...).  I know I should go around and find them by myself. It just happen to be same time as supporting other paying customers and developing next feature release.

Anyway it looks like Greenease is in beta or alpha stage (from http://greenease.co/for-businesses), do you need sales for scale or sales for initial lead generation? 


 

Alistair Davidson Eclicktick Consulting

July 19th, 2015

If you have inadequate money to hire a sales representative, then I recommend strongly taking a look at commissioned sales reps, particularly those already selling to your target audience. As a general rule, early stage startups don't have a model of the sales investment vs. the return from sales, so it's very hard negotiating a satisfactory relationship. You end up rolling the dice. In contrast, a commissioned sales representative already has enough sales to cover his overhead and his salary. You can be the incremental effort on top of an existing successful business. Clearly, partnering with companies makes a lot of sense too, but the negotiations are tough without experience as well. Alistair Alistair Davidson Eclicktick Consulting 100 N. Whisman Road, Suite 2213 Mountain View, CA 94043 Unified communications number: +1-650-450-9011 (rings all my phones) Mobile: +1-650-868-5588 Business: +1-650-450-9011 or +1-650-206-5770 Skype: alistairdavidson E-mail: alistair@eclicktick.com Blog: alistairdavidson.blogspot.com Twitter: @alistairdavidso Linkedin: http://www.linkedin.com/in/alistairdavidsoneclicktick Amazon.com author page: amazon.com/author/alistairdavidson Latest books: Innovation Zeitgeist, Digital Virtues and Memes Contributing Editor, Strategy & Leadership magazine http://www.strategyandleadership.com Certifications: Certified Scrum Master, Scrum Product Owner, Ensighten Certified Professional Manage

Bonnie Crater President and CEO at Full Circle Insights

July 22nd, 2015

We were successful at creating 50 / 50 plans and our first rep got 20% commission instead of 10%. After we were funded, we paid a base salary and 10% commission.  This worked and it was fair because our first rep had a generous option plan. We closed some seed funding 3 months later so it was not long before we could pay a base salary. 




Chicke Fitzgerald

April 16th, 2016

Vanessa - how did this end up working for you?  What did you do?