How To Compensate Your Sales Team
These past few blog posts, I’ve focused on the fundamentals of sales, perhaps the most essential skill for any startup. After all, in the end, no revenue, no company.
We’ve covered how to recruit great sales leaders and how to recruit great sales teams, so let’s move to the next natural point: Now you have great salespeople to work for your company, how should you compensate them?
Here are some thoughts drawn from our long experience. The caveat is that all companies are different, all markets are different, all technologies and science and the resulting products have their own particular demands. So, these are offered more as tenets than Ten Commandments.
You can’t spend money you don’t have. This may seem obvious, but I can’t tell you how many times I’ve seen startups spend themselves into catastrophe to acquire supposedly can’t-miss sales talent. The seduction here is the belief that the great salesperson will unquestionably bring in the new revenue that will cover their excessive cost. In a startup of limited means, you can’t make that bet.
You can’t compensate beyond revenue. The other all-too-common error of early stage companies is to spend more on their sales team than the team will create in short-term revenue. It is the old we-lose-money-on-every-sale-but-make-up-for-it-in-volume paradox. Entrepreneurs will convince themselves that they have to over-invest to get initial sales, but that efficiencies in the future will flip everything over into the black. Sounds good. But what if it doesn’t, or what if getting to the omega point takes longer than expected? The rush of precious capital out of the company could spell doom.
Absolute offers vs. contingent response. When making comp decisions—related to sales people in particular, but really to any kind of hire—it is critical that the commitments on both sides be balanced. Far too often, this is not the case. Frequently, the company’s commitment to the new salesperson is absolute—here is $X thousand of committed salary, reimbursement and benefits. The salesperson’s commitment, however, is contingent: At some point in the future I hope to deliver enough sales for your commitments to me to make economic sense. The company is all in money-wise; the salesperson is not. In my view, that is unfair and unwise for the company. The offer to the salesperson should be on a par with theirs to you, i.e., make sales and bring in revenue and the company will happily let you keep part of that money. Here, both sides share risk. Consider very low initial bases for the sales team, offset by fat commissions on their first sales. Consider bases that rise as sales targets are met. Consider a short-term consulting period of 100% commission before you actually agree to a long-term deal with a salesperson or leader. These keep the company from throwing money down a dry hole of revenue production.
You need a sales team that believes it can win. It is a cliché in sales that winners win. But, like many clichés, this one is grounded in truth. Your salespeople must be winners. They must believe, deep down inside, that they can make the sales you need. That your product solves real needs. That they understand those needs and can cause other people to understand how your product can help them. Don’t be timid. Test them. Try them. Push them. Prod them. If they believe they can win, your sales team will respond to those inputs with action. If, instead, you get complaints, obduracy, evasion, these are not the salespeople for you. Don’t hesitate, drop them and find humans who will win for you. It’s better for them to find their right fit too.
Whatever your sales comp model there ARE sales people who will work that way. When it comes to sales team comp, you have to maintain discipline. Stick to your guns on how much and in what form you can pay them. It may feel like nobody wants to take what you have to offer. Great candidates will take other offers. Your beloved favorites will act offended at what you propose and stop taking your calls. Your lips will be chapped from kissing frogs. But, still, you must persist. Somewhere on the planet are humans with appropriate skills and attitudes to win for you who are willing to work on the terms you offer. I often use the example of a startup that needs an experienced enterprise sales wizard but has no available cash. Hopeless? What about a wizard who just had a fat exit? No need for salary there. Or a wizard from a wealthy family? Or simply a real believer willing to risk his/her savings as you, the founder, are risking yours? Someone is out there for you. Don’t give in to the temptation cave on comp. Better to take the time and find the right revenuer than fall prey to expediency.
In short, keep early stage sales comp lean and balanced. Let the comp grow as the revenue grows. That is natural and will, in the end, produce the best outcome for everyone.
As always, we’re interested to hear how our advice works out for you. Feel free to drop me a line.
By Managing Partner Mike Edelhart