Pure Commission Sales Compensation Structure

[ions]

My salesperson is purely on commission. Today he approached me with a restructured commission proposal.

20% commission for a sale between $10K - < $50K

15% commission for a sale between $50K - < $100K

10% commission for a sale >= $100K

This structure doesn’t make sense because he won’t be motivated to sell for $110K ($11K commission) because that sale will give him less commission than a $95K ($14,250) sale.

Also 80% of the deals will fall between $10K - $50K.

How would you counter his offer?

Thank you.

 

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[StartupsRFun]

Im not a sales guy, but wouldnt bumping his commission up to where he would be making the most money by making sales over $100k be the answer? That way he would be motivated to go after the big sales

 

[wadza]

It's around the wrong way. Definitely incentivise based on a higher value. Or conversely you could offer a % of gross profit instead, which incentivises the sales rep to chase higher profit & deal value to get higher comms..

 

[ions]

His argument is that it takes about as much time to close a small deal as a large deal which is generally true. The product is software so the sale is almost entirely profits. I am thinking of just giving him a straight commission across the board and if he feels a customer is too small of a fish I can close those deals on my own.

 

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[Deki_mal]

Im new here and done have much experience so take my suggestions with a grain of salt, but...

If each sale is the same effort for him why dont you give him a lump sum per sale? That way he is motivated to close all sales

alternatively, if you give him a percentage of the sale value that is equal across all sales he is motivated to spend his time maximizing returns for you by doing whatever is most efficient (since you say almost all sales is profit)

 

[ions]

If each sale is the same effort for him why dont you give him a lump sum per sale?

Because I want him to be motivated to sell the software at the highest price.

if you give him a percentage of the sale value that is equal across all sales he is motivated to spend his time maximizing returns for you by doing whatever is most efficient

He is trying to mitigate his risk with the bracket approach just in case the expected $100K+ sale turns only into just a $30K sale. He is willing to take less commission on higher sales for the security of having higher commissions on lower sales.

That way he is motivated to close all sales

The additional benefit for him to close smaller sales is that he gets to meet all the decision makers in the industry and create a relationship with them. I see that as a great benefit for me and I am pretty certain he sees that benefit as well although he will not publicly admit it to me. He also attains valuable knowledge about industry trends and market information from each negotiation.

 

[Sydants]

If you're playing with those numbers they should've at least had the sense to approach with something like this.

20% commission for a sale between $10K - < $50K

20% of 50K + 15% commission of the sale $ between $50K - < $100K
(so if its 60k$ sale = 10K + 15% of 10k).

20% of 50K + 15% of 50K + 10% commission over sale >= $100K
(10k + 7.5k + 10% >$100k)


That way they are still incentivised to sell at a higher price.

If most of the sales are in between the first bracket. Change the bracket. Make it something like 10k-40k and 40k-60k. Then if they hit X number of sales above the first bracket they get a bonus. Try to make sure they're aiming for the upper brackets . Whatever you do make sure if they are a good salesmen they're happy.

 

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[ions]

I just had a conversation with a sales director about this topic. He recommended I keep it simple and give him a straight commission across the board. I decided that is what I will do.

Thanks for your input everyone.