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The Care and Feeding
The Care and Feeding of Sales People - Part 2
Compensation is King
The key to a good compensation package is that you pay your salesperson(s) for getting the results you want them to achieve. The ideal compensation package would have two components:
* Pay a commission based on gross margin or profit, not on sales. That way, they think about customers as profit centers, not revenue centers, the same way you do.
* Pay them commission only, with no base. After all, top salespeople are willing to bet that they will be successful.
In reality, the first of these components can very easily be made part of your compensation plan. It should be easy for you to calculate gross margin or profit with a simple, consistent formula that everyone understands.
Meanwhile, a commission-only structure is also doable, but is less common. Believe it or not, plenty of small IT professional service firms have hired very good salespeople on a commission-only basis. You have to keep looking, and have a realistic projection that shows how much salespeople can make if they succeed. However, you don't want your salespeople to be so desperate that they'd do anything to close a sale. I recommend you provide a small base salary so that they have enough to cover their living expenses -- especially during their first few months with you.
Be careful to avoid creating a compensation structure that will cause your salespeople to get fat and happy too easily. During the "dot com" heyday, I worked with one firm that paid their salespeople an $80,000 base plus 30% of the gross profit of any sale they made. These salespeople made $250,000 each year basically for doing no more than taking orders. When demand plummeted, they forgot how to go out and get new clients, and had made so much money during the past few years that they didn't want to. The owner had to fire them and start again.
If you're rewarding your salespeople for finding new accounts, give them a big piece of gross profit for the first six months to a year for sales generated through new clients, then little or nothing for sales that emerge from the ongoing relationship. That way, they'll focus on getting new accounts.
Your compensation scheme should also include a fair plan for how your salespeople will be paid if you terminate your relationship. They should receive some portion of their commission for any leads they generate, which close after they leave, as well as the commissions that were due them if they had stayed. That way, they are less likely to steal clients away from you (even with a non-compete agreement in place), and are less likely to bad mouth you to others.
Once you develop a compensation plan, create a table that shows your prospective salespeople what they can make at different levels of performance. Make sure that your table is compelling and realistic. If it is, you will attract plenty of top candidates.
Finally, if you find a great salesperson, pay them well and do what it takes to keep them. There's a famous Harvard Business School case study about a company whose salespeople earned more than the CEO/owner. The case study led to the conclusion that this situation is fine because the CEO wouldn't make half as much without the sales force, and can always sell the company for lots of money thanks to having this crack sales team in place.
Make The Job Easy With Excellent Marketing
Few salespeople can sell in a vacuum. One of the most important jobs you have -- with or without salespeople -- is marketing. You must work to ensure that prospects are receptive to your salesperson's calls. To do that, make sure the following elements are in place:
* A strong marketing message that explains the problem your company solves and why it's unique
* Excellent marketing collateral (from a top-notch Web presence to white papers, articles, direct marketing letters, etc) that attracts prospects
* Campaigns that make your business visible to prospects so that they know your firm's name, and what it does, before they get a call from your sales team
* PowerPoint and other presentations to help the salespeople make their case
* Tons of testimonials and case studies proving that you are a unique company that gets the results and provides the value that your prospects want
Train Them (and Yourself!)
Even if you don't know much about sales, you should still take an active role in getting your salespeople up to speed.
For instance, go on sales calls with them. Make phone calls with them, too. Even if you both stumble over your sales scripts, you will learn together and develop a stronger relationship. You will know how hard it is to generate interest, and they will respect you for rolling up your sleeves and trying.
Make sure they understand your services and products, as well as their limitations. Be sure that they can communicate the business benefits that your services and products create, so that they are not focused only on technical features.
Invest in their formal training by choosing an IT or professional sales system and paying for them to learn it.
Finally, you have an obligation to understand sales as much as you can. Study techniques and strategies to "make rain" so that you have a high-level understanding of what works. Also, see the blog "Essential Reading for Web Businesses" on SitePoint for a selection of related resources.
Manage Your Pipeline
It's essential that you have effective discussions with your salespeople about the pipeline and sales forecast. To do that, you first need to have a clear, mutual understanding about what you expect from the salesperson in terms of revenues (monthly, quarterly, annually) and activities (number of calls, number of visits). That way, there will be no surprises if you need to tell the salesperson that you are not satisfied with his or her performance.
You also need a common language about the stages of the sales process, the probability of closing a deal at that stage, and the total revenues you can expect in the near future.
Following are some of the stages in a sales process, along with the probability of your received a signed contract at each. You can refer to these stages, or create your own, in order to establish this common language with your sales force:
1. Qualifying: The salesperson has confirmed a compelling need or event that has caused the prospect to be interested, determined the prospect's budget, is speaking to all of the decision makers involved, and has a clear process mapped out for making a decision. If these elements are in place, the deal has a 25% chance of closing. Therefore, you can count a potential $10,000 deal as $2,500 in the pipeline.
2. Solution: You understand the prospect's criteria for moving forward, and have developed and presented a solution that meets their criteria. The prospect has agreed that this solution will solve their problem and wants to continue discussions. At this phase, you can assume a 50% chance of closing. A $10,000 deal is now worth $5,000 in your pipeline.
3. Commitment: You have positioned your solution to beat any competitive solution, and you've also won over enough key decision makers to tilt the balance in your favor. Even if there is no competition, you have won over enough people for them to want to move forward with your firm. Assume a 75% probability (but only if you have addressed the previous stages).
4. Engagement letter: The prospect has told you they will move forward, pending a formal engagement letter, which you have provided. Assume 85% probability.
5. Signed: Assume 100%.
Once you agree on the sales process, you should have frequent (at least weekly) business development meetings to review and update the pipeline. These meetings also serve as the place to discuss how the sales person will hand off deals to the development team when appropriate.
The key is to remain involved in the sales process, using the pipeline -- and a common understanding about it -- as a way to do that.
Know When to Pull the Plug, and Pull It
As noted earlier, most salespeople don't work out. Personality tests, sales aptitude tests, and raw intuition rarely turn out to be good predictors of sales success in small businesses. Therefore, be prepared for churn in your sales force. Treat it as a fact of life. Be ready and willing to remove a salesperson that isn't performing after three to six months.
The opportunity cost of having mediocre performers on your team is too great to keep them around for long.
Once you find that superstar, do what it takes to keep him or her happy.
An Uncommon But Effective Model to Build an In-house Sales Force
Some professional service firms have developed a model for creating a sales force that is quite profitable, and doesn't involve recruiting sales people per se. Instead, these firms recruit excellent developers and project managers who also have the personality traits to be good salespeople.
They pay these people well (because they are hard to find), and gradually groom them to take on more and more sales responsibilities. Those who attract clients eventually move up to a "partnership" position, with significant compensation and even an equity stake in the company. Those who aren't able to sell still remain on board as developers.
Essentially, this model creates a bunch of business owners building their own practice within your business -- while you and they benefit. All you have to do is pay them well enough, and create enforceable non-competes, so that they don't leave you and take their client base with them.
This model is expensive, and requires an investment in training and grooming. However, the firms that have implemented it have found that they can grow much faster and larger over the long haul than comparable firms that don't. Also, they eliminate many of the problems of having a separate sales force that isn't made up of technical people.
Conclusion
As we've seen, hiring and retaining even one good sales person can be a significant, time-consuming challenge. The rewards can be worth it, but only if you're willing to invest the time to recruit and manage the right people. Whatever you do, do it 100%. Don't abdicate responsibility or assume that a sales person is a silver bullet that will solve all of your problems with little or no work on your part.
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