Sales · Startups

What is a recommended payment method for independent sales people?

Eduardo Fonseca Cloud Provider | Azure & Unity 3d Developer | Senior .NET Software Engineer | MCTS

August 19th, 2015

In the case of tech startups selling online products and services, if you were to have independent sales people, 
what is the recommended payment method, is it a % of sales, if that what would be the recommended %
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Rob Edenzon Acting Vice President, Sales at Armorway Inc.

August 19th, 2015

I am not a fan of commission only reps for start-ups.  I've been a commission only rep.  My % has ranged from 10% to 40%.

But you can't expect an independent rep to cold call or tap their network and magically sell something.  They need lead gen, collateral, a sales process, an analysis of the market to focus on that is low hanging fruit.

You need to provide any rep, on payroll or not, the tools they need to be successful with your product or service.

Sara Hammes Leading Companies into New and Emerging Markets

August 19th, 2015

Thanks Rob! Completely agree. A go to market strategy for a company has to include a holistic effort. A BD person will not be successful without the right support. this translates to lack of success for the company as a whole. Relying solely on sales to meet all of your goals is an insufficient strategy.

Jessica Magoch Sales doesn't have to be a dirty word. Get more clients without being icky, sleazy, or just plain annoying.

August 21st, 2015

Hi Eduardo! 
You need to work the comp plan backwards.  It sounds from your post that you are talking about commission only. So you need to take a decent wage for your area and make sure that can be earned in the first year.  The percentage comes last, not first.  Start with the wage, ex/ 75k for Philadelphia, then work backward with the expected results regarding average sale, average life of a client, length of cycle to go from prospect to client, and then client to posted payment.  You'll need to "feed" sales people with a pipeline which should make up about 30% of their own prospecting efforts.  You want you people closing, not cold calling. If you have a subscription based product or repeat orders, then include renewal or residual income so that the second year forward far surpass first year income. Equity stake or a performance based stock program is essential because the leaders will always be recruited by other companies. You have to make sure the performance expectations are reasonable in regards to your sales cycles and how much lead generation you expect from sales people. No matter what, a commission only opportunity must have much higher earning potential than a base + commission or the risk isn't worth it for the salesperson. 
Happy to discuss if you need more info... 
j

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

August 19th, 2015

I'd disagree with Mark on collections. 

In an early stage start-up perhaps, but sales people are not bill collectors. There is a reason you would not have your accountant sell to your clients just like you should not expect a sales person to collect money.  

Again early stage start-ups is all hands on deck so I get the sentiment and the risk. 

If the issue is you have clients who do not pay your bills, then you are selling to the wrong people and need to adjust your ICP (Ideal Customer Profile)

Mark West Creative technologist and entrepreneur, building regulatory compliance software for gaming

August 19th, 2015

As mentioned earlier there are resources that answer this question available.  Do your research.

One thing I would highly recommend is that whatever amount you decide to pay, pay it on invoice receipt and not on sale.  Your sales people need to be engaged to ensure that the client pays, not just "promises to pay."  By tying the commission payment to receivables you (the company) share the risk with the sales person of future non-payment.

Sara Hammes Leading Companies into New and Emerging Markets

August 19th, 2015

Steve,

As I was partially responding to and fortifying Rob's comment, and as you pointed out this is an imperfect question, I don't think I am making a huge assumption at all. In fact I am speaking from much experience and giving my advice on how to structure a sales effort.

Wolfgang Hennes Co-Founder at Digital Public Affairs GmbH

September 12th, 2015

Hi,

good sales people Do Not work only commission based. They need retainer.

Commission depends on margin not revenue.

It is all a complex System individualized to your Company and budget.

Best regards

Wolfgang

Rob G

August 19th, 2015

% of sales is common, but this varies widely depending on what you are selling,  to whom you are selling, the skill set needed, etc. The are a few threads on FD on this topic already you should look at.  

Anton Yakovlev Founder of four successful businesses on two continents who can help you do the same

August 19th, 2015

It depends greatly on what exactly and to whom you are selling. You cannot just use one % rate for everything. 

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

August 19th, 2015

It's been my experience that a good sales person does not want to be "independent" for a start-up. Part of working for a start-up, especially at early stages is the equity play. 

I am happy to be proven wrong but that's just been my experience.