Commission Based Remuneration
The topic of commission-based remuneration has recently increasingly raised its head (see my previous blog on this subject). The argument is that sales people ought to be confident in themselves and thus should be prepared to share in the risk.
This is interesting. The issue of risk sharing is often, in my experience, misinterpreted as the sales or marketing company should take all of the risk. So what should the basis be for a reward based incentive for new business development?
I feel that first we should consider traditional marketing strategy. What are the key questions a sales person and their client / company need to consider before deciding whether an entirely commission based basis is workable?
- How well do you know your market?
- Is the market growing or contracting?
- Are customers buying?
- Are there many competitor players?
- What do they offer?
- What are the issues / challenges that potential clients need to resolve?
- What are your primary segments?
- What is the location (international, nationwide, local)?
- Who are the budget holders and decision-makers?
- Do you have a qualified list of names decision-makers that the sales person can use?
- Are you targeting lapsed customers? Is it as a result of gathering leads from an exhibition etc?
- How large is the pool to fish in? Are there a lot of targets to aim at or is this a niche?
- Does your product / service have a competitive advantage?
- How does your product or service measure up? Is it innovative or commoditised and me too? Have you established what solutions it provides that clients need?
- What is the value of sale?
- What likely value of sale is likely to result from a sales visit or call?
- Does the value of sale lend itself to a sales call or visit or is this better done via online channels, email marketing or direct mail?
- What is the likely reward to the sales person or outsourced agency?
- What percentage are you prepared to give away based on the value of sale?
- Is it a one-off payment or does it continue as long as they’re a client?
- How accessible is the market?
- Are you targeting new markets within which you have experience?
- Is the product an innovation?
- Is the market ready for your service or product?
- Do you have a track record?
- What support are you giving the sales effort?
- What sales tools are at their disposal to open doors?
- Are you well known in the market or a relative newcomer or minnow?
- Are you undertaking parallel marketing activity such as advertising, PR or exhibitions?
- What is the likely gestation period between contact and sale?
- Typically what length is the sales cycle?
- Do you have something to say?
- Does the sales force have ammunition in terms of proposition that they can use to engage potential buyers or is it a numbers game?
- How prepared are you?
- How many of the factors above are in place?
- Has the sales team been properly briefed on all of the key points and selling benefits?
- Do you know likely objections and have you defined objection breakers and arguments to counteract this? Have you provided your sales team with these?
- How realistic and flexible are you?
- If the above points aren’t aligned, how flexible are you in terms of perhaps considering another route such as a hybrid remuneration basis or a trial period on a fee basis? Once you’ve established likely trends, reception, timings and so on, you can then review the status and move to a more commission-based incentive.
You can see that there are lots of factors to consider before assessing whether a commisison-only solution might work. Sadly, there are many companies that only want this option and many sales people that perhaps don’t value highly enough what they do. It is about win-win. The company wants performance and the sales resource wants support and commitment. If a sales team (in-house or outsource) finds that the points above don’t work then it is likely that any commission-based relationship won’t work or won’t work for long. There’s also the issue of reputational damage to the company, service or product if the sales person becomes more desperate to seal the deal.
So consider the above factors and make the process work for you.