Sales Team Compensation

When it comes to structuring salaries for your sales team, certain principles should always apply.

Paying

Getting the most out of your sales team is vital if you are going to achieve your company’s full potential.

But it is not always easy. Sales people operate in a stressful environment where they are exposed to rejection and frustration. Effective organisation and motivation of the team is essential.

Start off with an analysis of the market. Analyse the various sub-segments in your market, and then determine how to communicate with them, and what the best ways will be to achieve sales fulfilment.

It’s about asking where you are as a company, and how established your product is in the market. There are a number of variables around this. Your company may be well established, but your product may be unknown, or vice versa.

Aligning the team to organisational goals

Once you understand where you are, the next step is to decide what products you want to sell where, and where your existing, new and potential clients are. Only then will you be able to structure and align your sales team accordingly, to target the different segments.

Traditionally, sales organisations structure their sales in terms of major accounts, industry specific accounts, area specific accounts and product specific accounts. In each of these segments, the grading level of each sales person must be done in line with their profitability and the quantity of accounts they are responsible for.

The questions of how much to pay sales people is a complex and frequently discussed one. Pay too much, and the cost of sale becomes too high and profitability goes down.

Pay too little, and the company will not be able to employ high-level talent and will also be vulnerable to high staff turnover. It’s generally accepted that ‘hunters’ who go out to find new business earn a higher commission than ‘farmers’ who are tasked with growing existing client business.

Experts agree that the following principles should apply:

  • The level of commission offered should be driven by company strategy. For example, if you want more new business, the commission plan should reward sales people who are ‘hunters’.
  • Limiting commission is unnecessary, as a great sales person will always want to know that their income will equal the effort they put into the business.
  • Companies must always set clear, achievable targets that can be met with reasonable effort. Unachievable targets are a sure-fire way to demotivate your sales team.
  • Major account executives should always earn more because their jobs are far more demanding than those of sales people who sell to large numbers of smaller companies.
  • There is a limit to the number of major accounts that one executive can manage. They have to have the time to do justice to each one, and to pay attention to the decision-makers.
  • Major account executives should be supported by product-oriented consultants whose task is to ensure that all users of the product in the customer organisation are making maximum use of the product. This will ensure that it remains entrenched as the users are getting maximum value.

Taking the variables into account

Salary levels are also determined by certain variables, the first being industry sector. Experience and expertise must always be taken into account and rewarded appropriately, but if an industry has a very high cost of sale, the sales person will undoubtedly earn a lower basic salary.

Furthermore, sales people working for an organisation with a highly recognisable brand, such as Coca-Cola, Google or BMW, will have an easier job than those working on a product that has zero brand awareness. The latter will require more experienced and more expensive sales people.

Lastly, scarcity of skills will also determine the level of compensation for a sales person. In South Africa, where IT skills are in short supply and highly sought after, for example, a sales person who has a background in IT will probably earn more than his or her counterparts because those skills are scarce.

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