Five Questions You Should Ask Yourself Before Updating Your Commission Plan
Book a free commission consultation call here.
Five Questions You Should Ask Yourself Before Updating Your Commission Plan
Your commission plan is one of the clearest signals you send to the market. It should be a reflection of the maturity and growth opportunities for your business. It quietly tells candidates what you value, what your business model needs, and can be a key deciding factor in attracting and retaining the talent you need.
The art lies in “right-fitting” your commission plan to your environment and your sales hiring strategy. Here are five key questions you should ask yourself before you update your commission plan.
1. Are you ready to grow - and does your commission plan match the conditions your salespeople will face?
In Are You Ready to Grow? I talked about readiness: getting the “conditions” right before you hire.
If you’re expecting a highly capable and experienced closer who can hunt, shape complex solutions, and command high standards with clients, you should consider what that person’s results are worth. Commission should be a worthy reward for the high levels of business acumen, judgement, resilience and the comfort in ambiguity that requires.
You don’t need such high-end sales people if you have a blueprint for success with a clearly defined value prop and with fully mapped-out prospect data and territories. Add excellent repeatable training and a library of collateral you can be successful hiring young, hungry graduates.
When you get a clear idea of where you sit on the spectrum between those states, it naturally forces you to consider what a good sales hire in your firm really is.
If the environment is still developing and you don’t have all those things in place, your commission plan can overcome that. Great sales people who have mastered the art and science of winning clients often look for such environments where they can earn more and make a bigger impact.
2. How much of the sales lifecycle are you really asking one person to own?
One of the first places to look is the breadth of responsibility you’re loading onto your sales hire. Are you expecting them to:
Generate new opportunities from scratch?
Qualify and shape those opportunities into realistic work?
Close the deal and manage the account?
Hand-hold delivery to make sure the outcome you’ve sold becomes a reality?
Now layer in the supporting conditions:
Do you have a wealth of relevant case studies they can take to market?
Do you have strong client references in the specific area you’re trying to grow?
Do you have a wealth of tools and data?
How cold is your pipeline today?
What’s the quality of your delivery?
If you need a salesperson who can do most of it on their own, make sure they can earn commission to reflect that.
If, on the other hand, you’ve built a self-sustaining system that gives sales people a head start and allows them to focus purely on executing your plan without the need for mastery, you can hire more junior candidates, motivated by learning as well as compensation, and still be fair at a lower commission rate.
Commission should be a fair reflection of the work and risk you’re asking one person to shoulder across the sales lifecycle.
3. How dependent are you on finding a superstar salesperson?
If you need a superstar, make sure you offer them the kind of compensation package that will motivate them. This kind of hire can take your company out of the doldrums and into a new position from which to build something more sustainable.
When might you need a superstar?
Tight market conditions
Entering a new geography
Starting a new vertical
Executing a turnaround
Incomplete sales strategy
Strong delivery, poor sales
Most successful companies owe some part of their success to superstars. The very best use the platform superstars build to create a self-sustaining business that no longer needs them.
4. Does your commission plan really fit the competitive landscape you’re hiring into?
This is where a lot of businesses rely on gut feel when they should be looking at data.
I have created a cottage industry out of collecting commission plans in the talent business. When I’m speaking to new clients, I’ll often say:
“Tell me your commission plan so I can see who we’re competing with for talent.”
That means being able to answer:
How does our commission plan compare to the places we like to hire from?
Is there upside here for the experienced sales person we’re looking for?
What about delivery - are they compensated competitively too?
You don’t have to match the market penny for penny. But you do need to know where you sit and be comfortable with the story that will actually attract the people you’re looking for.
5. Does your commission plan create the right dynamic between sales and delivery?
In many talent businesses, sales people are paid significantly more commission on the deals they do with their recruiting counterparts. Sometimes that makes sense based on the business situation. But it can be corrosive.
If your commission plan is heavily skewed towards sales:
You create a built-in incentive for recruiters to become salespeople as fast as possible. This could be a good thing and works in some companies.
You risk ending up with a Ferrari towing a caravan as the best people are in sales and the opposite for delivery.
Recruiters can end up becoming second class citizens who don’t fight for the client information they need to be successful.
Many companies have realized that incentivising recruiters as handsomely as salespeople creates a viable career path on the delivery side. This leads to a culture that values delivery and deepens recruiting expertise. In turn, it leads to higher standards from the sales team.
Commission plans can create a healthy tension between sales and recruiting, not a power imbalance. That bit of tension can lead to excellence on both sides with delivery holding sales to account.
That’s the quiet power of your commission design: it doesn’t just drive revenue; it shapes who stays, who leaves and how much your delivery function drives quality as a partner to the sales organization.
Bringing it together
If you answer these five questions clearly, your commission plan will become a clear expression of your strategy and will be a key mechanism in attracting and retaining the right people to execute it.
If you would like to learn about your competitors’ commission plans, please book a free commission consultation call here.