A question asked as CEOs struggle to understand the right sales compensation plan for their sales leaders (managers). There are rate cards published by various recruitment companies as a guide, but how accurate are those numbers?
The rate cards have some industry variation, but often that is not even taken into account. So why does a sales leader in one industry with fifteen direct reports have a salary package of $300,000 per annum, and another in a different industry has a salary package of $150,000?
The profitability of the business will contribute in part to this as some products attract greater margins than others. However, the real consideration that is missing in the rate cards is the responsibilities of the role and the maturity of the business.
Let’s consider how those variations can affect your sales compensation offer.
The responsibilities of the role are not dictated by the number of people reporting to the sales leader. It has some impact but not as much as the maturity of the business. The responsibility of the role is more related to the degree of new business that is required for the company and new products going to market. Signing new businesses consistently is a skill that is not a core capability of many salespeople or sales leaders. Those who have the skills immediately generate a higher income than their counterparts, who are more focused on protecting existing customers.
Here are four different profiles of sales leaders:
Profile 1: Your company is a start-up and, therefore, a high-risk sales leadership role that demands a new business focus. These positions are taken up by experienced sales leaders who understand how to make money and engage a team of high-energy sellers to perform. The team will be small initially, and as the company grows, new hires are added. The sales leader will lead by example and sign large sales as part of their role to increase their earnings. These people are often referred to as cowboys of sales. They go their own way and have larger-than-life personalities. They are excellent for identifying what products will have rapid growth being new to the market. They have a short-term value to the business, maybe a couple of years, as they drive initial growth. They are averse to structure and reporting, and everything is done on the fly. These people are risk-takers and look for a significant upside to their sales compensation plan. Typically their sales compensation plan will be made up of 60%+ incentive uncapped earnings. Other employees become very envious of the large earnings, which often turns into a cultural problem in the business after several years. They are difficult to manage and a high risk to the company overall, often leaving problematic sales issues behind.
Profile 2: Your business is growing, and the competition is now pushing back on your offer to the market. You need a sales leader that is going to give you a competitive advantage. A person capable of building high-quality sales forces that are capable of winning deals in tough markets. This person is a high-energy leader who spends time in the field travelling. They are great coaches of their team members and clearly see their results being achieved through others. They are good sellers in their own right but remain more of a salesperson than a sales manager. They often guide teams through conversation more than applying effective sales management for productivity. These people look for a higher base salary and lower incentive plan. The at-risk component of their salary will be 20-30%, depending on your product. They create a great sense of comfort for the executive as they are reliable and consistent, but growth above the industry average often eludes them.
Profile 3: Your market is mature, and your products are at the stage of mature or maybe decline. The sales leader will most likely be more customer service-focused and prioritise the protection of existing customers. This person is seeking a stable income for a relatively easy sales leadership role. They believe in the autonomy of the team as this applies the least amount of pressure on their position. The expression often applied to these sales leaders is caretakers as they are just maintaining what the company has already achieved. They attract a lower salary with a lower risk element. Typically a more senior person is looking for a comfortable position. Their at-risk component will be 10-20% of their salary package and often given as a bonus more than on-target earnings. They are often people who have been in profile 2 roles and now entering a semi-retirement or complacent stage of life.
Profile 4: Your business has achieved consistent growth, and you are now looking to expand into new markets and new products. The sales leader you require is experienced in taking new products to market and managing larger sales force numbers. They are performance managers keeping structure and discipline across the sales team. These people are capable of delivering consistent profitable growth on stretch sales goals. Their demand for salary is a higher base and an uplift of 40% of their salary package.
Many variables affect sales compensation plans. Marketing support for lead generation, travel, deal size, and the complexity of sales all contribute to the decision of what sales compensation plan to pay and how often.
Another variable is the maturity of the person’s capability as a sales leader. Smaller companies are often challenged to attract the quality of sales leader they need, not so much because of the salary package but how the company prioritises sales and the expectations of the sales leader.
In the book Building the Most Effective Sales Force in the World, we identified the different skill sets of sales management. This is important information to align compensation packages too. Click on the link to get a copy today.
If you would like to discuss the right sales compensation plan for your sales leader and team, please reach out and contact the office.
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