Sales Hiring - You're Doing It Wrong (Part 2)
Sales Recruiting and Hiring Tips, cont.
Last week we talked about why figuring out exactly what type of sales representatives you should be hiring is an important first step in building a sales team. Today we'll address another common mistake that companies make when hiring for sales--paying those sales representatives in the wrong way.
Even if you hire on the perfect sales professionals and give them top-notch training and management, if you haven't set it up right when it comes to the money, they won't perform well or stay on long. A thoughtfully designed compensation structure will provide the foundation your sales team needs to achieve their potential and your revenue objectives.
Set Up an Effective Compensation Structure
Do you really know how much you should be paying each of your sales representatives? Should you pay a base salary? How much should your commissions be? How should you figure the appropriate total targeted compensation for your sales team? Should they get benefits? Spiffs? Bonuses? And who's responsible for paying taxes on all that money?
Employee or Independent Contractor
The first question you should be asking is which hiring designation you should choose for your sales representatives. Employees of a company are normally hired under the IRS's W-2 tax designation. Such workers are official employees on the company's payroll, and the company pays employment tax on them. This is the designation that allows you to offer your employees attractive benefits like health insurance and 401K. When your sales professionals are officially employed by you, you have the right to instruct them to work set hours and dictate the manner in which they do their jobs, as well as require them to attend training sessions.
An alternative tax designation is 1099, which means that the worker is designated as an independent contractor. In effect, this means that your sales representatives officially each have their own independent company, and you are contracting with that one-person company for services. The major advantage of using the 1099 designation is that you eliminate the paperwork and liability of having official employees. Each sales representative is responsible for paying his or her own employment taxes, so you have no extra payroll expenses. However, the very ease of "hiring" and "firing" these non-employees often results in an unstable, revolving-door sales force. The 1099 model also fails to attract a lot of great sales professionals who are looking for a more permanent position and/or benefits.
Total Targeted Compensation and Salary vs. Commission
You have the choice to pay your sales representatives either a mix of salary and commission, or straight commissions. Whichever structure you choose, remember that your sales professionals want to know what their take-home pay will be at the end of the day. You'll want to research what other companies in your area and industry are paying sales representatives who do a job similar to the one you want done, so that you can figure out what your total targeted compensation (TTC) should be.
Once you've determined your TTC, it's time to decide how that should be divided between salary and commission. Many companies intuitively want to go with a commission-only solution, because they only want to pay for sales made. However, sales representatives often feel more comfortable with a company that is willing to invest in them by paying a reasonable salary. Paying a salary sends the message that you value your workers, want them to stick around, and have confidence in their ability and fit for the position. Companies that hire on straight commission often end up hiring indiscriminately, because there are no up-front costs. The result is excessive turnover and a feeling on the part of the sales team that they are expendable.
Your sales function is more likely to be successful if you choose a salary + commission structure. Split your TTC so that the commission is weighted more heavily than the salary, but not overwhelmingly so. The goal should be for the majority of your sales team to hit the TTC, although there will of course be variation in the commissions received. Here at Netpique sales outsourcing, our commissions are always uncapped, because we want our employees to be able to set and achieve their own goals.
Bonuses, Spiffs, and Other Extras
While your commissions should be intelligently structured so as to provide motivation to your sales force, your sales management strategy should also include extra opportunities for employees to earn either more money or special prizes. Incorporating both long-term and short-term incentive programs into your sales function will help keep your sales team motivated, excited, and consistently performing well.
Frequent small events providing extra motivation over the space of a day or week might result in prizes like gift cards, movie tickets, or small cash prizes. A longer-term contest might be over a month or the summer, and result in a larger cash bonus for those who achieve certain production numbers over the course of the contest. Here at Netpique sales outsourcing, our biggest sales contest is the President's Club. The contest runs for several months, and winners receive an all-expenses-paid trip to our annual Executive Retreat at a five-star resort near the company's headquarters in beautiful Palm Coast, Florida.
Your company may not go as all-out when it comes to sales rewards, but even if your contest ideas are more moderate, you should make sure you include them when you are budgeting for sales team compensation.
Need help designing the perfect sales compensation structure for your company? We have a lot of experience and would be happy to put it to work for you. Contact Netpique sales outsourcing today!