How much should I pay a sales person? (Company #'s Included)

[SPM_ENT]

Hey everyone,

As my b2b service business scales, I've been drawn to focus more on our branding and company process to make sure that when real growth comes we can scale quickly. In the first year, I took the company basically from 0 - $230k. This year with our current clients we are on track for $600k but my goal is 1m. I was able to reach those numbers working on sales for about 8 hours a week. With more dedicated time a salesperson should be able to hit those numbers after 3-6 months. (I have considered that it could be part-time as well, I don't care how much they work as long as the sales are there)

I'm trying to figure out how much to pay my sales reps and wanted to get some opinions. I'm planning on a low base salary against commission. The salary will be $14 or about $2,400 a month.

I run the company based on the "Profit First" model. Basically, everything gets divided into separate accounts by the percentage as soon as it comes into the bank. It's a great read by Mike Michalowicz if anyone is interested.

COGS: 55%, I can't do much to bring down the COGS. The actual cost is 50% but I set it at 55% so that the bank account grows larger than our expenses monthly.
Marketing: 3%, We set aside 3% for marketing and advertising. At the moment we don't do any paid advertising so it's being saved to go towards a new website and the branding.
Expenses: 5%, Expenses are pretty low but it covers the minimal expenses and a part-time employee to help with AR
Company Savings: 2%, This is money set aside to reinvest in the company for things like new computers or equipment.
Sales Person: TBD, This will be the total salary and commission for this position.
Sales Support: 2%, This is for a vehicle, insurance, and food/gifts/lunch to bring to clients. The Salesperson can spend it how they like.

Here are the real numbers. I set the "# of jobs" to what I currently was able to bring in. Here's a google sheets link, I hope I did the protected ranges correctly. You should only be able to change the "# of jobs" and the Sales Person Percentage. LMK if I didn't get it right.

Sales Salary

Sheet1 $891.00 Average Job,$1,620.00,$550,33.95% # of Jobs,99,$1,070.00,66.05% Is there a way to know how many tests are per day/ per month Monthly,Annual,Join a group that can give us the numbers Gross,$160,380.00,$1,924,560.00,This is how to know the opportunity Sales Position Monthly,Annual...

docs.google.com

I have the sales position set at 7% at the moment. If a full-time salesperson is able to do what I did (I only worked 8hrs a week) they would be making about $4,505/month or $54,054 a year. If they can double it they can make over 100k. I believe the 100k mark is possible but it would probably take 1-2 years. 50k isn't great in California however this position required very minimal training. You basically just need to show up consistently and be likeable until their current provider makes a mistake or wants to give us a shot. On top of that we have metrics that show our service is the best in the industry.

So I'm curious to know what people with experience have to say, please let me know what you think the sales position percentage should be and/or if you'd do something completely different.

In addition if you have any comments about the other percentages feel free to give me your opinion as well.

Thanks guys,

Shaun

 

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[TheKingOfMadrid]

A lot of it depends on what you need them to do. Were going through a global pandemic right now and students would happily work for you on commission only.

This can be useful if you want them to find leads and then they can ring you (the one trained on the phones) to deal with the clients.

This offsets a lot of the work on your side. If you incentivize them correctly they'll become loyal members of the family.

 

[SPM_ENT]

In order to scale I need them to be stand-alone salespeople who can close meetings. By close meetings it's really just "Heres what we do, we're the best, call the office for any new jobs" then it's up to our employees in the office to really take care and manage the client to make sure they are happy.

Basic job roles will include:
Get meetings with new leads to explain the benefits of our service.
Monthly office visits to current clients to make sure everything is good.
Be on call to take care of any issues a client has.

 

[SPM_ENT]

A lot of it depends on what you need them to do. Were going through a global pandemic right now and students would happily work for you on commission only.

This can be useful if you want them to find leads and then they can ring you (the one trained on the phones) to deal with the clients.

This offsets a lot of the work on your side. If you incentivize them correctly they'll become loyal members of the family.

Forgot to add the quote.

 

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[TheKingOfMadrid]

In order to scale I need them to be stand-alone salespeople who can close meetings. By close meetings it's really just "Heres what we do, we're the best, call the office for any new jobs" then it's up to our employees in the office to really take care and manage the client to make sure they are happy.

Basic job roles will include:
Get meetings with new leads to explain the benefits of our service.
Monthly office visits to current clients to make sure everything is good.
Be on call to take care of any issues a client has.

Any marketing/business student is likely to be able to take on these roles.
Even trained sales people will work for you in these climates if you make it attractive enough.

Personally I wouldn't pay a base salary - I would be showing them that i'm the best that the company focuses on MONEY IN and that the more MONEY IN the more money for them and the sky is the limit.

If you inspire and lead you create a family and everyone wants everything to succeed.

 

[Kung Fu Steve]

Most sales professionals (higher-end ones) expect a 10-15% commission. That's across many different industries.

If you're looking to attract some real killers, your compensation plan should include a scaling commission and once they hit a certain tier it becomes retroactive.

I suggest picking up the book The Ultimate Sales Machine by Chet Holmes. He's has an entire chapter on how to hire salespeople, how to compensate them, and how to grow your sales division that's gold.

Find a way to pay your salespeople extremely well.

My current team earns somewhere between 100-400k/year. They bring in $1-4mm in revenue per year. On average 10% commission.

 

[Azure]

Most sales professionals (higher-end ones) expect a 10-15% commission. That's across many different industries.

If you're looking to attract some real killers, your compensation plan should include a scaling commission and once they hit a certain tier it becomes retroactive.

I suggest picking up the book The Ultimate Sales Machine by Chet Holmes. He's has an entire chapter on how to hire salespeople, how to compensate them, and how to grow your sales division that's gold.

Find a way to pay your salespeople extremely well.

My current team earns somewhere between 100-400k/year. They bring in $1-4mm in revenue per year. On average 10% commission.

There are some notable exceptions to this - particularly in industries with a significant degree of recurring revenue.

Foodservice and grocery are regularly in the 1-3% range even for top talent but this low % is offset by the fact that every good sale will provide months or years of (potentially) low touch recurring revenue.

 

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[Johnny boy]

You need two levels of salespeople

1. order takers

2. price setters/managers

I was thinking about the sales structure for my service business for a long time. We will need plenty of salespeople to deal with all of the quotes when we are at scale, but a LOT can go wrong with bidding jobs poorly. It's an art form. And you don't want a company full of schmucks who are supposed to be artists.

90% of the salesperson's work is repeatable, easy, a big use of time. Full of things like explaining the top 10 most important things over and over again during quotes. The real catch is pricing it correctly.

Think of it like car sales. The salesperson doesn't get to set the price of the car. That would be insane. The sales manager does. The salesman shows them the car, builds rapport, does the paperwork, etc. But the sales manager is the one who can set prices and give discounts.

Having your salespeople paid on commission is giving them a bad goal to aim for. You think "more profit for us = more pay for them = they will care about our profits" but here's how they think...

"bid job at $2000 = low chance of success and I get $50, bid job at $1500 and high chance of success and I get $30. I'll go for the sure thing"

I had a salesman who would quote low because he just wanted a deal. I remember when I would sell cars and I'd be asking the manager for a discount because I knew and the customer knew they could just go down the road and save money and I just wanted to get paid something.

Also, your salespeople will overpromise to get a higher price signed up. They don't have to deal with the ramifications. Imagine a car salesman getting paid on an indefinite car that has an indefinite value and they got paid on commission. The customer says "I want a BMW for 40k". The salesman says "I'll get you a ferrari for 90k" and the customer says "damn...okay". Now YOU as the company have to supply the customer with what they were promised. Service businesses are like that. The salesperson invents what will be delivered. Make sure your salespeople aren't promising a bunch of bullshit.

What you should do is hire people on salary to just do their job and meet with clients, explain how the services work, collect information for the price quoting sales manager to provide, and that's it. They can get paid like 30k a year or something. Be careful with incentives. Incentivizing a high price will lead to overpromising.

Now the sales manager can be a highly trained individual who is paid very well who does the actual price quoting. They get the information from salesperson in real time during a quote, crunch the numbers, and sends out a price. They can do hundreds in a day while the salespeople are out running around explaining crap to the customers/clients.

This is how we will do it when we are at the right size to justify it.

Right now, I will be able to do the sales all by myself. This is partially why we only do recurring services. I can give a quote, and they are a customer for life (or at least 12 months). I could have 3 million in yearly profit and still spend an hour a day or so giving quotes. We won't need to hire salespeople until we are trying to add more than 1 million in revenue in a single year. Even then, we could grow by a million a year and I would be pretty happy for a few years. Not that I'm saying we are close to that now or anything. We are going to be pacing 300k a year by summertime.

Overall, you should have two levels of salespeople. The basic salespeople that are trained to explain how things work and build rapport. And then the sales managers that are highly trained killers who choose prices and make good money.

 

[SPM_ENT]

Most sales professionals (higher-end ones) expect a 10-15% commission. That's across many different industries.

If you're looking to attract some real killers, your compensation plan should include a scaling commission and once they hit a certain tier it becomes retroactive.

I suggest picking up the book The Ultimate Sales Machine by Chet Holmes. He's has an entire chapter on how to hire salespeople, how to compensate them, and how to grow your sales division that's gold.

Find a way to pay your salespeople extremely well.

My current team earns somewhere between 100-400k/year. They bring in $1-4mm in revenue per year. On average 10% commission.

Thanks for the book recommendation, I'll check it out. For that 10% commission what are their job responsibilities? Do your salespeople take home more per job than you do? As in, on a 10k job, your salesperson makes 1k and you take home $500 but because you have more than 1 salesperson you end up making more money overall?

There are some notable exceptions to this - particularly in industries with a significant degree of recurring revenue.

Foodservice and grocery are regularly in the 1-3% range even for top talent but this low % is offset by the fact that every good sale will provide months or years of (potentially) low touch recurring revenue.

I believe this is where I'm struggling to make a decision. It's somewhere between paying them really well vs the position isn't difficult and provides plenty of recurring revenue. They make the introduction and then will need to stop by once a month. One new relationship could send 20 or more jobs each month. If I pay them 7% commission that's $33k gross income for the company and $2,310 for the salesperson each and every month per company they bring in.

You need two levels of salespeople

1. order takers

2. price setters/managers

I was thinking about the sales structure for my service business for a long time. We will need plenty of salespeople to deal with all of the quotes when we are at scale, but a LOT can go wrong with bidding jobs poorly. It's an art form. And you don't want a company full of schmucks who are supposed to be artists.

90% of the salesperson's work is repeatable, easy, a big use of time. Full of things like explaining the top 10 most important things over and over again during quotes. The real catch is pricing it correctly.

Think of it like car sales. The salesperson doesn't get to set the price of the car. That would be insane. The sales manager does. The salesman shows them the car, builds rapport, does the paperwork, etc. But the sales manager is the one who can set prices and give discounts.

Having your salespeople paid on commission is giving them a bad goal to aim for. You think "more profit for us = more pay for them = they will care about our profits" but here's how they think...

"bid job at $2000 = low chance of success and I get $50, bid job at $1500 and high chance of success and I get $30. I'll go for the sure thing"

I had a salesman who would quote low because he just wanted a deal. I remember when I would sell cars and I'd be asking the manager for a discount because I knew and the customer knew they could just go down the road and save money and I just wanted to get paid something.

Also, your salespeople will overpromise to get a higher price signed up. They don't have to deal with the ramifications. Imagine a car salesman getting paid on an indefinite car that has an indefinite value and they got paid on commission. The customer says "I want a BMW for 40k". The salesman says "I'll get you a ferrari for 90k" and the customer says "damn...okay". Now YOU as the company have to supply the customer with what they were promised. Service businesses are like that. The salesperson invents what will be delivered. Make sure your salespeople aren't promising a bunch of bullshit.

What you should do is hire people on salary to just do their job and meet with clients, explain how the services work, collect information for the price quoting sales manager to provide, and that's it. They can get paid like 30k a year or something. Be careful with incentives. Incentivizing a high price will lead to overpromising.

Now the sales manager can be a highly trained individual who is paid very well who does the actual price quoting. They get the information from salesperson in real time during a quote, crunch the numbers, and sends out a price. They can do hundreds in a day while the salespeople are out running around explaining crap to the customers/clients.

This is how we will do it when we are at the right size to justify it.

Right now, I will be able to do the sales all by myself. This is partially why we only do recurring services. I can give a quote, and they are a customer for life (or at least 12 months). I could have 3 million in yearly profit and still spend an hour a day or so giving quotes. We won't need to hire salespeople until we are trying to add more than 1 million in revenue in a single year. Even then, we could grow by a million a year and I would be pretty happy for a few years. Not that I'm saying we are close to that now or anything. We are going to be pacing 300k a year by summertime.

Overall, you should have two levels of salespeople. The basic salespeople that are trained to explain how things work and build rapport. And then the sales managers that are highly trained killers who choose prices and make good money.

The price per job at my business is already set so there won't be an issue with this as the salesperson has no control over pricing. From what I've done in the past I know that an employee who is incentivized properly will bring in far better results than one who isn't. At this point, it's just a matter of how much can/do I want to pay.

 

[Kung Fu Steve]

Thanks for the book recommendation, I'll check it out. For that 10% commission what are their job responsibilities?

Real high-D salespeople are a pain in the a$$. They are tough to manage, sloppy and disorganized, and don't always pay attention to detail... but they will bring in the money.

My buddy has a group he coaches on sales and most of his group are 400-5mm/year earners. They are hungry and simply want a quality product they can sell that YOU handle all the servicing and stuff. They want to sell a deal and move on to sell the next deal.

If you have a really high-performing salesperson, it would probably make sense to give them an assistant or an office manager to clean up all their messes.

Do your salespeople take home more per job than you do? As in, on a 10k job, your salesperson makes 1k and you take home $500 but because you have more than 1 salesperson you end up making more money overall?

It's possible.

Your job as a business owner is not just to track top-line revenue, but bottom-line profit. You have organize your crews in a way that they get jobs done faster. The more efficient you are, the more money you will make.

The way I look at it is who cares what your take-home is (as long as you can put food on the table) -- you're looking at what's your profit at the end of the year (actually, CASH. Profit and cash are not the same thing. Ask Enron). If you pay yourself a 60k salary, efficiently run your business and at the end of the year you have 100k in profited cash, you could take a distribution, reinvest it, grow the business -- there's a lot you could do with the money.

Couple random thoughts:

1.) You can always pay a salesperson MORE, but if you decide to pay them LESS -- expect to lose them. (don't start at 15% or 20% until you know your numbers and what you CAN afford)

2.) Sales people should be the highest paid in any company (as long as they produce. 100% commission roles usually)

3.) You really should grab that book

 

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[sparechange]

As little as possible with bonus structures for motivation

 

[SPM_ENT]

Real high-D salespeople are a pain in the a$$. They are tough to manage, sloppy and disorganized, and don't always pay attention to detail... but they will bring in the money.

My buddy has a group he coaches on sales and most of his group are 400-5mm/year earners. They are hungry and simply want a quality product they can sell that YOU handle all the servicing and stuff. They want to sell a deal and move on to sell the next deal.

If you have a really high-performing salesperson, it would probably make sense to give them an assistant or an office manager to clean up all their messes.



It's possible.

Your job as a business owner is not just to track top-line revenue, but bottom-line profit. You have organize your crews in a way that they get jobs done faster. The more efficient you are, the more money you will make.

The way I look at it is who cares what your take-home is (as long as you can put food on the table) -- you're looking at what's your profit at the end of the year (actually, CASH. Profit and cash are not the same thing. Ask Enron). If you pay yourself a 60k salary, efficiently run your business and at the end of the year you have 100k in profited cash, you could take a distribution, reinvest it, grow the business -- there's a lot you could do with the money.

Couple random thoughts:

1.) You can always pay a salesperson MORE, but if you decide to pay them LESS -- expect to lose them. (don't start at 15% or 20% until you know your numbers and what you CAN afford)

2.) Sales people should be the highest paid in any company (as long as they produce. 100% commission roles usually)

3.) You really should grab that book

Let me start, or rather clarify that I understand my question is one of personal preference and I understand there is no "correct" answer. I'm looking for an example of what other people have done and from those examples make a personal decision about how much I value a salesperson vs my income vs how big I want to grow the company. I understand that 10% of a 10m company is the same take home as 1% of a 100m company but if I own the company I'd have a larger net worth if I do want to sell the company at 100m.

At this point, it doesn't seem like they need to be a high-performing salesperson. They make no price determinations and it's more a matter of consistency and being in front of the client. There is only a limited amount of potential clients in their territory so I don't believe they will need assistants either.

I'm not sure I understand what you mean by who cares what my take-home is. I'm doing the business to make money for now and for the future. I also want money to live life and make other investments. As I said above I completely understand that this is more a personal preference question as far as take-home income. It seems like you're suggesting take home just enough to pay my bills and grow the company. Would that be correct?

1. I believe you're saying "more" than "less" when comparing similar companies' sales positions? I think again this goes to personal preference and why this question is difficult for anyone else to answer.

Obviously, the possibilities are endless but I included the numbers so I could get opinions on what other people might do. After expenses, I have about 35% to pay salespeople, my partner, and myself. As an option, I could pay salespeople 10% commission only and then my partner and I split the remaining 25%.

2. Hard one for me to accept but thank you for the reminder.

3. For sure

 

[Kung Fu Steve]

I'm not sure I understand what you mean by who cares what my take-home is. I'm doing the business to make money for now and for the future. I also want money to live life and make other investments. As I said above I completely understand that this is more a personal preference question as far as take-home income. It seems like you're suggesting take home just enough to pay my bills and grow the company. Would that be correct?

Yeah, I suppose it would be better if I asked the right questions of you... like what you want it to look like, what you want to earn, what's your business goals, etc.

So if you're not really looking to scale it but want to make a really good income, there's nothing wrong with that.

1. I believe you're saying "more" than "less" when comparing similar companies' sales positions? I think again this goes to personal preference and why this question is difficult for anyone else to answer.

Obviously, the possibilities are endless but I included the numbers so I could get opinions on what other people might do. After expenses, I have about 35% to pay salespeople, my partner, and myself. As an option, I could pay salespeople 10% commission only and then my partner and I split the remaining 25%.

2. Hard one for me to accept but thank you for the reminder.

3. For sure

1. Yup!

2. So many organizations go through this where they feel like they pay their salespeople too much but they forget if their salespeople are making a ton of money, so are you!

But yeah, if your mission is just to make a buncha money out of it you can do it that way. I work with a lot of businesses who are struggling and I guess my first "go-to" in a conversation is the health of the business is more important than anything else. But not everybody has to (or wants to) operate that way -- and again absolutely nothing wrong with that.

3. Lemme know what you think of it, definitely a favorite

 

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[SPM_ENT]

As an update, I ended up meeting with an industry contact for lunch and got some information on what the top salespeople make.

The goal and determining factor was that I wanted to pay 20-30% higher than what a top salesperson can make at another company. For my numbers, I was right on track with the 7% figure. I may have overthought this one but the more I know and review things a few different ways the more confident I feel.

Thanks for the help guys.