White Paper on Sales commission for Colleges

Colleges weigh in on why they are and are not paying sales commission or bonus to sales staff.Are College Institutions Paying Sales Commission?A White Paper by Kathy YeagerI hope you enjoy the White Paper. Contact me at kyeager@ctedge.net for a complimentary one-hour coaching session on how to improve your sales team skills, reaching your sales goals, or improving close rates. Table of Contents Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Why a White Paper on Sales Commission? . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 The Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Sample Models for Commission and Bonus Plans . . . . . . . . . . . . . . . . . . . . . . 7 Barriers to Setting up a Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Who Would Approve This Compensation Plan? . . . . . . . . . . . . . . . . . . . . . . . .8 How to Potentially Get a Commission or Bonus Plan Approved . . . . . . . . . . . 9 Why Institutions Are Not Paying Sales Commission or Bonus . . . . . . . . . . . . 9 What is the Reality of College Institutions Paying Sales Commission?. . . . . .11 Sales Staff Compensation Comparison for $1,000,000 in Revenue . . . . . . . . .12 Sales Staff Compensation Comparison for $2,000,000 in Revenue . . . . . . . . .12 Contract Training Edge Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14 Sales Commission—should College Institutions pay a commission or bonus to their sales people or not? This is the age-old question being asked year after year as colleges restructure, realign, and reinvent their Workforce Development and Corporate Training Departments. This White Paper will explore the pros and cons of paying sales commission to sales staff at College Institutions. It is designed to get you thinking, and gives you current responses from College Institutions who are and are not paying sales commission or bonus. Also included are sample commission models and how some College Institutions got this approved in their system. Introduction With the massive changes in the economy over the last few years, college budget cuts have forced administrators to go looking for alternative sources of revenue. Many administrators have a continued or renewed interest in the Workforce Development and Corporate Training Department as a potential way to bring in more business and increase the bottom line. Staff members in the1200 Community and Technical Colleges and over 2600 Universities across the country are expected to “run it like a business” in an academic atmosphere, fill more seats in open enrollment classes, open doors to larger businesses in Corporate America and bring in more dollars for the institution. This is working in some colleges and universities nationwide because they are structured properly, are entrepreneurial and have the support of upper administration. Some small, medium and large institutions are struggling in this area because the sales staff doesn’t really like to sell, or even know how to sell. In addition, the sales process may be lacking and the department structure may need realignment. Once the marketing is done by the institution or the department, the awareness door is opened for the sales staff to make those sales calls. The key is to have the “right” person in that sales position who loves to hunt for sales, eagerly picks up the telephone to make proactive, outbound calls and methodically steps through the sales process with each prospect. How do you find such Super Stars? The answer is to attract outside sales talent with a track record of success. This person has previously sold in the private sector and understands the mechanics of the sales cycle. The benefit is that once they are hired by your Institution, they already know how to sell—they just need to learn the products, services and policies of your department. In most cases, the success rate is usually higher using this method rather than hiring a college internal person who already knows the products, but doesn’t really want to sell. However, some internal college people may love to work with people, prescribe a solution that will make a difference in the organization and are open to learning how to sell in this “new economy”. Either way, the Institution wins with the right person in the sales position and producing results. Definition of Some Key Terms: Sales Commission – A percentage paid on sales produced by the salesperson. The salesperson may be completely on sales commission, or have a base salary and a percentage of sales. Bonus – An amount paid over and above what is due. This may occur when a goal is reached. This may be paid monthly, quarterly or yearly. The individual salesperson may receive the bonus or the entire team. Why a White Paper on Sales Commission For many years, College Institutions have been asking if they should be paying sales commission or bonus to their sales staff. I wondered, too, if paying a sales commission would attract better sales people, motivate them, and produce more revenue for the institution. As a result, a Sales Commission Survey was conducted by Contract Training Edge in April, 2011. The 15-question survey was e-mailed to 1994 workforce development contacts nationwide. Of the 1994 contacts surveyed, 207 completed and returned the survey for a 10% response rate. The Institutions were broken down by combined credit and non-credit size to include the following: Large – 10,000 or more enrollments per semester Medium – 5,000-9,999 enrollments per semester Small – 4,999 or less enrollments per semester The Results 
14 of the institutions pay sales commission or bonuses to sales staff
193 of the institutions do not pay sales commission or bonuses to sales staff
Analyzing the Results Of those institutions paying sales commission or bonuses, nine were large, two were medium and three were small. Some of the reasons cited why they pay commission or bonuses included: 
Stronger recruits
Sales staff do tend to maximize every sale they get by selling additional services
Being able to attract talent with a proven track record in the private sector. Paying one person who can sell at the $1M level is much more cost effective than hiring additional staff with benefits
Recruiting better sales people
More enthusiasm around sales; very goal oriented sales professionals
No ceiling on earnings
More sales
Commissions are based on account profitability, so the benefit is to maintain a higher level of profit and no cap on staff salary
It’s been a mixed bag. It’s a great incentive to sell more and at a greater net revenue margin, but we have to balance that with successful project management and quality. We’re a small team and so it’s a challenge to constantly improve the efficiency of our resources and our team roles for the best customer experience.
The Institutions paying sales commission or bonus represent 13.8% of those responding to the survey. The pro-commission comments indicated the ability to recruit better sales people, remove limits to earnings, and an incentive to sell more. When asked if the Institution benefited by using a sales commission, 7 replied yes, 5 said no and 2 didn’t know. How Many Sales Staff on Commission or Bonus? Size of InstitutionSales StaffOn CommissionOn BonusLarge+50+5Large321Large440Large303Large333Large550Large42?Large440Large220Medium303Medium+52?Small110Small+5+5+5Small+5+5+5 Institutions have more sales staff on commission than on a bonus program. Three Institutions are giving bonus only. Four Institutions have sales staff on both commission and bonus. What is the Average Percentage for Sales Commission of the Individual’s Salary? What are the Sales Goals? Size of Institution% CommissionSales Goals/PersonWho Sets Goals?Large0-1%$150,000-350,000Executive DirectorLarge2-3%$500,000-1 MillionCEOLarge9-10%$150,000-350,000Senior DirectorLarge?$150,000-350,000DirectorLarge4-5%$500,000-1 MillionDirectorLarge4-5%$150,000-350,000VP Bus. Dev.Large0-1%$150,000-350,000Vice PresidentLarge?$150,000-350,000Senior DirectorLarge?$350,000-500,000Regional DirectorMedium0-1%$50,000-100,000DirectorMedium??CEO/CFOSmall2-3%$150,000-350,000DeanSmall9-10%$100,000-150,000Dean The commission percentage ranges from 0-1% to 9-10%. The results show three Institutions paying 0-1%, two paying 2-3%, two paying 4-5% and two paying 9-10%. It does get more interesting when the higher sales goals of $500,000 - $1M are evaluated. Those commission rates are at 2-3% and 4-5% respectively. Please note: The sales goals listed are per person at each Institution. Sample Models for Commission and Bonus Plans 
Sales (Account Executives) get a base salary plus compensation plan. This is based on gross margin and tiered layers. Layers start at $350,000 volume to over $750,000 volume and 5%-10%
Sales staff receives a 4% commission on sales. This is monitored and paid quarterly.
The sales staff has a base salary of $51,000 and paid 10% on the net margin.
Our commission plan has been in place since 1999. The staff receives base salary and a percentage based on the size of the sale. The percentage ranges from 2.5% to 10%.
Sales people have assigned goals. Once the group makes the goal, a bonus of 1% is paid to each person. Another flat fee is paid for reaching goals attached to our strategic plan.
Each sales staff receives a $500 bonus each quarter if they achieve their quarterly goal of $75,000.
What are the Barriers to Setting up a Plan? If an Institution is considering putting a commission plan or bonus in place, they should be aware of the barriers they might encounter within the academic institution. One survey respondent said, “We were ‘blazing new territory’ and had to conduct a national study and write a proposal for administrative approval.” Another survey respondent said, “It was difficult to settle on the when, where, and how of the plan. It was not difficult to get administration’s buy-in on paying commissions. We had another department that was already doing it.” A third respondent said, “College Leadership had a concern about setting a new precedent, and how to create an incentivizing but fair commission structure.” One college spokesperson said, “We have a commission plan, but it was put together five years ago with administrators who had lack of information, lack of precedent and anxiety about creating this model. The result was a smaller base salary plus commission with a cap. This limiting factor did not attract top sales talent to the college with extensive sales backgrounds.” The remainder of the respondents currently paying commission or bonus stated they had no difficulty getting this through their system. Multiple survey respondents said they didn’t pay sales commission or bonus because they were a state funded organization. One person said, “We weren’t allowed to pay sales commission because of state regulations.” If the state does have such a regulation, obviously the College Institution would adhere to these rules. Interestingly, 13 of the 14 College Institutions who did pay commission or bonus were state funded organizations, and still found a way to implement sales commission or bonus. Should barriers hold the Institution back from creating a commission plan or bonus? It depends on the desired outcomes. Sometimes the barriers are insurmountable in an academic institution, and it may appear to not be worth the effort. As shown in the survey results, some Institutions went the extra mile to benchmark other colleges paying sales commission and bonus, wrote proposals, and created a plan that would work for their department. Who Would Approve This Compensation Plan? Many Workforce Development and Corporate Training Departments are structured differently with reporting structures directly to the President, or multiple levels down from the top. The survey respondents stated their compensation plans were approved by the following positions at the Institution: (they checked all that applied) 
Board – 4
President – 6
Vice President – 4
Dean – 2
Workforce Director – 2
Regional Director – 1
How to Potentially Get a Commission or Bonus Plan Approved 
Do your homework. Research to find who is paying commission and interview them to see how it works and if it is producing results. Note: The College Institutions involved in the research with this White Paper asked to remain anonymous.
Be clear on the goals of your College Institution for the entire department and for each individual sales person.
Be sure the right people are in the sales positions. This means they know how to hunt for sales, and enjoy the process. In addition, they have shown they like to build relationships and can produce results.
Prepare a proposal for college upper management showing research, other college models, suggested percent of commission or bonus and forecasted results. (An example of a commission model might be a salesperson with a fixed salary and benefits plus a 3-5% commission on all contracts sold).
Be clear that the salesperson generates the added revenue to cover the percent of commission or bonus. The college wins and the salesperson wins. In addition, conduct pre-interviews with the college business office to make sure money goes in and comes out of the “right buckets”.
Following the proper chain of command, submit this proposal to college upper management. Be ready to answer questions.
Why Institutions Are Not Paying Sales Commission or Bonus Ninety percent of the survey respondents said they didn’t pay sales commissions or bonuses, gave their reasons, and proceeded to the end the survey. Some of the reasons why institutions aren’t paying include the following: 
We are a state-funded institution
Against state regulations
Sales supports the department and the college
We have a team approach to sales
Policy
I don’t know
We are not hired as “sales” staff. Building partnerships is part of our job description
We don’t want to be structured that way
Past practice
We don’t have anyone that is strictly sales
Our internal structure does not yet have the appropriate supports to ensure their success on commission – i.e. time to process contracts for signature, invoicing issues, etc. However, we continue to revisit this as a potential structure
Sales staff is salaried
We don’t have the budget to do this and we are based on a team effort not individual
We did, but it just changed recently
Beginning to explore this possibility
No money
Receive a bonus at the end of the year if in the black
No, we would like this, but there is no mechanism in our district policy that will allow for commission-based compensation. We are exploring this option though.
With 90% of the survey respondents indicating they were not paying sales commission or bonus, the message is clear that Institutions either aren’t ready or want to pay this incentive. Some additional reasons given for not paying commission include the following:
The college business office finds it difficult to tie the employee’s benefits percentage to a sliding scale or commission rate
If the sales person gets paid on commission—then everyone in the office should be paid on commission
We have never done it this way before
Fear of the sales person making too much money
We don’t want to track sales and report numbers
It takes awhile for a new salesperson to learn the products and services and get “up to speed” before they start producing
Interview of a College Institution being Successful without
Paying Sales Commission
One of the College Institutions interviewed who doesn’t pay sales commission, shared the following information:
Paying sales commission was on the table for discussion for several years. Finally the Director of the Workforce Development Area took it off the table until the department could be restructured to better serve the customer. It has not been put back on the table.
This department is working in a strong team environment. The person who makes the sale is only a small part of the operation. There is a solution developer who develops the proposal, and a complete implementation team who does the contracts, gets instructors and starts the classes. Serving their customers is a huge team effort, and it would be difficult to isolate out one person for a sales commission.
Since they can’t pay everyone a commission or bonus, they hold celebrations as a team. Periodically they will have a sales contest, and perhaps award a half day off work. Client Services can get the same reward for conducting exemplary customer service. To celebrate the numbers at the end of the year, the Director may take the entire office out to dinner (paid personally by the Director). Sometimes they buy ice cream or pizza to celebrate. They also ring a bell in the office when they land a contract larger than $20,000. All those involved in the transaction are honored.
Structuring a sales commission within the academic institution would be difficult. Currently, this department has 2-3 people on the college budget with benefits and who are paid out of soft money, as well as some on contracts. This becomes an issue with the college budget, and would be hard to get it through the system.
In addition, this College Institution indicated it was hard to fight for additional money for commission or bonus when the college is having budget cuts and some people are being furloughed.
However, here is what’s working in this department. They carefully hire the right people for open positions. The salary is better than normal and they get benefits. They are given clear expectations, goals and held accountable as they receive their first 90-day contract to see what they can do. After 90 days the goals are monitored, and a decision is made to either give another 90-day contract or to release the employee. After one year, the employee goes to yearly contracts. Employees are mentored and have may have frequent performance improvement sessions.
This model has worked for this College Institution. They set a goal of $2M in sales last year, and met their goal. The restructuring has helped to get everyone in the office circling around the client. The Director said, “You can make a lot of sales, but if you don’t have the rest of it (fulfillment and implementation), you won’t get another one.”
It is all about hiring the right people, and giving them clear expectations while holding them accountable. It is about celebrating the successes and mentoring for performance improvement.
This College Institution is no different than any other College Institution. They are looking for money to offset the state budget cuts, and they are looking at the Workforce Development Area to help close that gap. Under this model, the department is meeting those expectations.
What is the Reality of College Institutions Paying Sales Commission or Bonus Paying sales commission in Workforce Development and Corporate Training Areas within educational institutions may not even be an option due to lack of support, or lack of understanding of how to run this department within an academic institution. Some survey respondents replied they had no sales goals or quota. They were on salary, and the “pay is the same” if they produce or not. Many colleges interviewed were working for “unnamed goals”. A general goal given to them would be to “stay in the black” or breakeven. These are unexciting goals! Entrepreneurial Institutions look for ways to make things happen. They attempt to “run it like a business” and get very creative in looking for money and resources. They pursue grants, partner with other organizations, hire part-time sales people on supplemental contract, and look for ways to streamline processes. Paying a sales commission means that you “keep score”. The pipeline is filled on a weekly basis and analyzed on Fridays. The sales person is held accountable through weekly meetings, sales call reports, close rate and repeat business. Some college sales staff might say, “I didn’t sign up for this!” It certainly is a different world from “the pay is the same” if we produce or not. One survey respondent said, “I don’t see any hunger on the part of the sales staff to prospect for sales. They were very used to leads rolling in, and now that they aren’t, they are ill equipped to hunt for business. Commission might motivate them.” If the College Institution has clearly defined sales goals and expectations of the sales staff, plus accountability—commission could be an option. Commission is usually not an option for an organization with unclear goals and little accountability. Two Scenarios As I research College Institutions around the country, I have found the average sales person makes about $45,000 - $55,000 in salary and brings in about $150,000 - $250,000/year in business. In the last few years, that revenue has been less because of economic conditions and not selling properly in this “New Normal”. In the interest of expanding your thinking—let’s create a comparison scenario of sales departments with a $1M goal and another with a $2M goal for the year. Notice the difference in total staff cost with people in sales positions with no commission and high-performing sales staff receiving commission. Assumptions:1. Sales staff base salary is $55,000 2. Benefits are calculated as 30% of base salary Sales Staff Compensation Comparison for $1,000,000 in Revenue Scenario #1: Four Sales staff, no commission Sales StaffRevenueSalaryBenefitsCommissionTotal Staff Cost1$350,000$55,000$16,500n/a$71,5002$300,000$55,000$16,500n/a$71,5003$200,000$55,000$16,500n/a$71,5004$150,000$55,000$16,500n/a$71,500$1,000,000 $220,000$66,000n/a$286,000 Scenario #2: Two Sales staff, 5% commission Sales StaffRevenueSalaryBenefitsCommissionTotal Staff Cost1$650,000$55,000$16,500$32,500$104,0002$350,000$55,000$16,500$17,500$89,000$1,000,000$110,000$33,000$50,000$193,000 Scenario #3: One Sales staff, 5% commission Sales StaffRevenueSalaryBenefitsCommissionTotal Staff Cost1$1,000,000$55,000$16,500$50,000$121,500 Sales Staff Compensation Comparison for $2,000,000 in Revenue Scenario #1: Six Sales staff, no commission Sales StaffRevenueSalaryBenefitsCommissionTotal Staff Cost1$500,000$55,000$16,500n/a$71,5002$400,000$55,000$16,500n/a$71,5003$350,000$55,000$16,500n/a$71,5004$300,000$55,000$16,500n/a$71,5005$250,000$55,000$16,500n/a$71,5006$200,000$55,000$16,500n/a$71,500$2,000,000$330,000$99,000n/a$429,000 Scenario #2: Four Sales staff, 5% commission Sales StaffRevenueSalaryBenefitsCommissionTotal Staff Cost1$700,000$55,000$16,500$35,000$106,5002$600,000$55,000$16,500$30,000$101,5003$400,000$55,000$16,500$20,000$91,5004$300,000$55,000$16,500$15,000$86,500$2,000,000$220,000$33,000$100,000$386,000 Scenario #3: Two Sales staff, 5% commission Sales StaffRevenueSalaryBenefitsCommissionTotal Staff Cost1$1,200,000$55,000$16,500$60,000$131,5002$800,000$55,000$16,500$40,000$111,500$2,000,000$110,000$16,500$100,000$243,000 Which of these scenarios is closest to what exists at your Institution? Which scenario would you like to move towards? Should College Institutions pay sales commission or bonus to sales staff? The decision will depend on the following criteria: 
What are the Institution’s financial goals for the Workforce Development Corporate Training Area?
Is the Institution mandated by state policy not to pay a commission?
Is the upper management of the Institution entrepreneurial?
Can the Institution’s Business Office understand and handle the accounting of the commission or bonus?
Are the right sales people in the sales positions? Do they like to sell?
Is the sales staff currently being held accountable?
Is the Institution attempting to “run it like a business”?
Only the College Institution can answer these questions. The goal of this White Paper was to determine if College Institutions were paying sales commission or bonus. By surveying multiple colleges and universities nationwide and gathering strategic data regarding payment of commission, college representatives can now make a more informed decision either to pay commission or not to pay commission. Thank you for reading this White Paper. Your questions and feedback are welcome. I hope you enjoyed the White Paper. Contact me at kyeager@ctedge.net for a complimentary one-hour coaching session on how to improve your sales team skills, reaching your sales goals, or improving close rates. Kathy Yeager Kathy Yeager is President of Contract Training Edge, LLC, a consulting firm specializing in college and university workforce development and corporate training, solution selling, sales coaching, DiSC Sales Assessment, advanced sales techniques and consulting. Kathy brings over 35 years of experience in marketing and selling contract training to business and industry to your organization. She specializes in “how to” techniques for prospecting, effective sales calls, solution selling, proposals, closing, contracts, fulfillment, follow up and more. Her unique presentation style and humor helps to give your employees the edge they need to achieve a higher level of effectiveness in selling contract training. Her experience in adult education came from 34 years at Johnson County Community College in Overland Park, Kansas. Having worked both in credit and continuing education in the Center for Business and Technology and the Business and Technology Division, Kathy is a contract training professional with experience in all areas of marketing, selling training and consulting to businesses. She understands how to make proactive sales calls with targeted, qualified businesses resulting in high close rates, large contracts and the development of long-term relationships. Kathy is a recognized national expert in assisting colleges and universities to sell more products and services to business and industry. She is a highly sought-after speaker for conferences and keynote presentations, and conducts a sales webinar series each winter and fall. Kathy is the author of the Workforce Development Benchmark Project which identified best practices on a national level, and also writes a monthly e-newsletter with the latest tips on how to prospect, conduct solution selling and close more business. Kathy works with individuals, colleges and universities, state associations, and national organizations to help them better understand the importance of selling strategically in this new economy. Contact Contract Training Edge, LLC 913-593-5347 kyeager@ctedge.net www.ctedge.net

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White Paper on Sales commission for Colleges

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