How can I determine how much to pay a salesperson?
I have been in business for about a year and need to add a Marketing/Salesperson (Relationship Specialist) to my team. I am looking to hire a Relationship Specialist to sell Medicare services to senior citizens in retirement communities. I'm not sure what I should pay someone for this position. I was thinking an hourly base plus commission. Any thoughts?
Thank you in advance for your time and help.
Cost of a Sales person depends on his experience, his pedigree (college) etc.. The thumb rule is that the Sales person should generate revenue atleast 6 times of his cost . i.e if the cost of the product is $500 and you make a margin of 20% i.e $100 and you are paying this person $1500 then he should get you 90 sales...Though initial months you many not find this person giving this output give him 3- 6 months to come to this average.. I would slab his salary in this mode
Basic Salary : Min # of Orders
10% Additional Sales : 15% of his Basic as commission
20% Additional Sales - 30% of his Basic as commission
50% Additional Sales - 75% of this Basic as commission
75% Additional Sales - 100% of his Basic as commission
I think you are on the right track with an hourly pay plus a commission. It is hard to attract good people on straight commission but of course many of the highest paid sales people have learned that is the way to make the most money. Without knowing more about your business, the job you have available and the cost of living where you are it is hard to be more specific with suggestions but really good salespeople are not always easy to find and sometimes can be those you would least expect.
Unless it is a highly technical product which it doesn't sound like I don't think I would worry so much about pedigree in terms of college. I would suggest looking more for someone whose background was that they really sold something and not so much an order taker of which there are plenty of. I would perhaps look for someone who sold insurance in the past. Keep in mind too that a good salesperson need to be as much a listener as a glib talker. Understanding the objections of the customer is a key part of selling and someone who talks more than listens my miss those things. Since they will be calling on senior citizens I would also suggest looking more at a more mature and experienced salesperson rather than a younger one. They will relate better. People relate to those who they feel are similar to them.
There are numerous resources available online and in the local business library that can help you develop your compensation package. Start by doing a Google search. I did and found the following http://bit.ly/1xL6feP.
Check out industry trade publications. Most all of them have an annual compensation (salary) study.
Utilize salary calculators / resources like www.salary.com input your zip code and type of job and you'll find a range of salaries in your area.
In most cases Salary is based on exp. and location. Take a look at http://www1.salary.com/Insurance-Industry-Sales-Salaries.html to get a better idea based on the said criteria. Since every business is different you need to re-evaluate the pay after 3,6,12 months to insure you are getting a good ROI. In other words the sales person needs to pay his own salary and make a profit for you.
I depends on how and what you are asking the person to sell the services. If they need upfront training and knowledge to be effective, than it often pays to invest more to keep them on board. In the life of a sales person, especially in starting up, times/income is lean as they learn the ropes, also along the way there will be bumps in the road. So a base that covers their investment of time but leaves hunger to close sales in play is good. Over paying with hourly base is also important to avoid. A naturally motivated sales person will learn quickly and want income via higher commissions (either by percentage on closed sales or on long term contract revenue). At the end of the day, you want sales people that enjoy selling and are good at it, not people who are selling because they can't do other things. A good compensation plan is also a good tool to weed out wanna be salespeople from real salespeople.
I like your idea of an hourly base plus commission, this is the way I/we paid our sales force and still recommend it today...I suggest you decide an hourly rate that is fair to the company and your potential rep to properly incentivize. When your rep starts covering his fixed costs to your company, pay him/her on a commission scale that is based upon both volume and profit. Once your Rep starts to cover his/her fixed costs, then a commission structure sliding or a constant straight number (your choice, or use both) then start a commission structure based upon the marginal income he/she is producing...My experience tells me a commission structure that recognizes both keeping existing business and rewards for new business, will help you determine who can really be a professional salesperson with you...Make sure when sales are projected they do it with you, and use low, realistic and high numbers...And add these to your present business plan and see how your bottom line improves as the sales go up...Good Luck
First see what law say about to pay minimum wages in your country,than best practice is to give bounce on performance and give good sale incentive on achievement of there target
Sector Dynamics, Market Potential, Experience of Employee, Personal Strengths and Abilities, His / Her Connections, Communications, Access to Target Accounts, etc. and sure your Budget.
I agree with many of the answers below. I would probably hybrid some of the answers to find the best solution. I would pay a starting salary possibly around minimum wage, and pay commissions above that wage. However i would clearly define how the commissions will work in progression with goal achievement. I would also make sure they have proper sales training if you do not hire a experienced individual.
Do you know your margins? Once you know that you will be able to offer your Marketing/Salesperson/Relationship Specialist a choice: 1. If that person wants less risk but some upside for performance (meaning generating measurable cash flow) then hourly plus is the solution. 2. If the person is shown an increased potential for being willing to take more risk for a higher upside potential then straight commission would be his/her choice. But either depends on what kind of volume can be created with your product or service. I just know that I heard wonderful words when I went to work for a company years ago that offered a draw against commission. The draw was minimal and deductible from earned commissions; but my boss said "We've got it figured out so that I can honestly say that I hope you make a ton because the more you make the more we make. So I'll do everything I can to help you make a fortune. " Those words inspired me to make really good income and become National Salesman/Recruter of the Year. Hope this helps.
The type/level of compensation may also depend on if the company will be providing leads to the sales person or they will be self-generating leads. If you are providing qualified traffic, fixed cost can be less with higher variable (commission). Remember, a list of retirement communities is not a lead.
A low hourly base with a commission with performance bonuses is a great structure for salespeople. If they're building from the ground up and not coming into an existing territory, you can do a diminishing base so that they are covered for breaking virigin ground within a territory and have something to live on while they build the basics. If the territory is already in existence and they are stepping into some existing accounts, then a small base with commission on their sales seems to be a good combination.
Even if you are tempted by commission only, be sure you don't fall foul of any minimum wage legislation i your jurisdiction.
The same goes for working hours and though it doesn't apply yet, benefits, such as pension contributions – for instance, auto enrolment applies to ALL companies in the UK after 2017.
An hourly basic or equivalent hours salary is sensible and you py for experience and intellectual capital.
Operating a sliding scale along the lines suggested is also very sensible, as a simple treshold is open to abuse if there is any discretion over discounts when the month end approaches.
For your additional question, commission can be a percentage or a fee per or a sliding scale (ie $100 commission for a $1000-2000 sale, $200 for 2-5,000, etc.)
There are a million formulas and they can all be good if it benefits both parties I'd counsel a couple of things that are key to having a good sales person as well as a metric.
- Know how important is how much revenue? Can you satisfy unlimited sales, would you have to pause to grow in operations at some level? Your target should be supported in a business plan not just getting "more"
- Businesses that skimp on sales compensation get what they pay for. Sales people who can sell can sell anything so the better ones go to where the money is.
- Know the value of a new sale to you based not on revenue but on profit. Compensating on pure revenue may not be as beneficial as looking at it from profit.
- Some industry "norms" in a very flexible world might be 10% of revenue or 40% of profit.
- Sales people will generally do what they are paid best to do so your pay structure needs first to attract and then retain a professional who is guided by compensation to do what is best for your business
- If you think industry knowledge, contacts are most important consider investing in sales training if you don't have a seasoned pro, you can build a time commitment into your hire if you are investing (just like paying for a degree and getting time back).
- You must manage a sales person or be prepared for failure. I teach clients not to manage sales people on revenue, compensate them on money, manage them on behavior (how many appointments, follow ups, prospecting targets, etc.)
Richard Stern-Suggest you find a person who has experience in your industry. If you find someone tyou think is right have them write a Sales and Marketing Plan to sell your service.
If the Plan looks good suggest a base salary and commissio. Based on the rate once the person breaks even then strictly commission.
Suggest contacting Unemployment department and find out what the base salary is for the sales positio.
Use this as a starting point.
see what your competitors are paying- try and "steal an experienced salesperson.
You may want to consider sharing resources for a target customer segment but for a different product offering. For example, we are trying to reach out to healthcare providers, ACOs etc., to help them write interface programs that could help them bring together various software platforms. We are also in a early stage and thinking about ways to contain costs.