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5.4 sales force structure and compensation.pptx


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Basic treatise about sales force structure and compensation - mostly relating to the tech industry

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5.4 sales force structure and compensation.pptx

  1. 1. This presentation is made possible by the support of the American People through the United States Agency for International Development (USAID). The contents of this presentation are the sole responsibility of Rick Rasmussen and do not necessarily reflect the views of USAID or the United States Government. Sales Force Structure and Compensation
  2. 2. Hiring a Sales Team • Sales people are different creatures • Motivation through compensation • Top performing sales people are often the highest paid –even above the CEO
  3. 3. Building a Sales Organization • CEO must be the first sales person • If you can’t sell, you don’t believe and you don’t belong • Do not hire the first sales person too soon • Understand your own story and sales methodology first..!
  4. 4. Sales type: Gladiators • Solo hunters • They go away, don’t check-in frequently, bring back customers having sold “the product”
  5. 5. The Professional Salesperson • Usually trained at a big company • Require support staff to succeed • Good at taking orders & building relationships • Expensive
  6. 6. Timing You will need different sales people at different stages Bootstrap seed series A series B series C exit
  7. 7. Scaling the Business Search for Product/Market Fit Search for Repeatable & Scalable Sales Model Conserve Cash Invest Aggressively Scaling your Sales Force
  8. 8. What’s the blocker to faster growth? • Usually it is the rate at which you can grow leads – Typically each lead source maxes out – Adding new lead sources often means paying more per lead Source C Source B Source A Leads Time • Another blocker: – The rate at which you can hire and train really high quality sales people
  9. 9. Sales Force Considerations • Market Type – Existing – Resegmented – New • Customer Engagement Type – B2B – B2C – B2B2C
  10. 10. Sales and Marketing • B2B – Professional Connection – Limited to direct contacts – Sales motivated by direct connection • B2C – Virality, Customer Accrual, Churn, CAC<CLV • B2B2C – Day in the Life – Teach and Educate
  11. 11. Types of Sales Forces • Direct: – Employed or contracted sales people (common in B2B) – Your own web or other direct channnel (common in B2C) – You directly interact, get contracts and collect monies • Indirect: – Distributors, VARs, Resellers, Manufacturers Representatives (Reps), etc (B2B) – Referral sites, affiliate sales, marketplaces (B2C) – You dictate terms, someone or something else interacts with customer. Either one may collect the money – Managing a sales channel
  12. 12. Multi-channel sales force VP Sales Direct Sales Region 1 Region 2 Region n Channel Sales VARs and Resellers Distributors Reps Online Sales Site creation and testing Customer service Customer Admin
  13. 13. B2C Direct to Consumer • Masses • Rise above Noise • Press, Blogs, Virality, Top 25 lists • SEO/SEM • PPC/CPC • Free/Ad, Free/Upgrade, Freemium, Pay one time, Pay subscription, Upgrades, Discounts
  14. 14. B2B and B2G • Seen in high-ticket and/or long sales cycle businesses • Direct sales people work directly for company • Customer Behavior – Selection by committee – Risk averse – Technical or service details to work through – Higher cost of switching: Willing to strike long term relationships • Sales person requirements – Patience – Professionalism – Flexibility – Service mentality
  15. 15. Setting a sales compensation plan • Define Desired Outcomes • Pre-Revenue: – Pre-sales activities based on KPIs – Objective: number of calls to target customers • Once revenue is achievable: – Revenues – Margins • Determine quotas • Construct on-target-earnings (OTE) per role
  16. 16. What to measure? • Bookings: An order being placed with the company – Pluses: Incentivizes placement of orders, the one thing that sales has control over – Minuses: Subject to abuse. Adjustments for cancellations and returns • Billings: An order that has been fulfilled and invoice sent to customer – Pluses: Incentivizes delivery to customer, sales works with factory – Minuses: Adjustments for returns, non-collection • Collections: Money received by company for orders shipped – Pluses: Advantage to company, minimizes cash float – Minuses: Sales force may not be paid for weeks or months. Customer may not pay for non-performance, outside of sales control • Other KPI: Meetings, Reports, etc. Useful when starting up.
  17. 17. Commission Structures • Salary only • Salary + Bonus (KPI) • Salary + Commission • Minimum Wage + Commission • Commission only depending on situation • Commission curves • Setting commission % depends on the product, your margins, expected volume, length of sales cycle, etc. • All these variables get thrown in and you try to come up with enough $ for the sales person to make it interesting. • A part time person will probably want to see at least $3K to $7.5K/month. Below that, it’s not very exciting. Full time, expect $5K to $10K with upside potential for someone with prior experience in your sector.
  18. 18. Quota-based plans • Setting a variable compensation plan and paying out against performance to that plan • Two elements: – “On-Target-Earning which is the equivalent to a standard salary for the grade level of the sales person – Quota, the expected amount of sales that person is to bring in • Multiplier: Quota divided by OTE – To earn one dollar, they must bring in X dollars • Example: – OTE of $60K, Quota of $1.2M has a multiplier of 20 – Cost of sales is therefore 5% of revenues (not counting overhead)
  19. 19. Linear Sales Plan Sales Compensation Base Multiplier Quota
  20. 20. Accelerators, Decelerators • Beyond quota, “accelerators” provide motivation – if the commission rate on performance up to quota level is 5%, – 6% for 101% to 115% attainment and – 8% for 116% and above – always uncapped…
  21. 21. Up to an Amount Used when capacity of product or service is limited Often reset when new capacity comes online Sales Compensation Base Multiplier Quota
  22. 22. Accelerated Pay Scale Used to motivate your top performers achieve maximum results Sales Compensation Base Multiplier Quota
  23. 23. Common Early-Stage Comp Structures
  24. 24. Summary • Sales compensation can be an effective strategic tool • Set your goals and design a program that steers your sales force in the right direction • It’s OK to do a mid-course correction for the year. – Up is better than down.