Give up commission and pay your reps’ full salary
Kevin Dorsey has a radical view of sales compensation: a full salary.
After all, engineers make salaries. Data scientists do it too, as do marketers and product managers. In fact, employees in every other role in a tech company earn salaries and somehow manage to do their job. So why can’t sales reps?
Dorsey, who is the vice president of inside sales at PatientPop, believes commission structures can be the root of some of the most common issues sales teams face: low quota adherence, churn, and recruiting. “Commission is an archaic way of paying people,” he said.
But paying a full salary can also provide other benefits, like the ability to have reps. at a higher level in all their responsibilities. It just requires thinking about sales performance metrics and compensation in a different way.
Fixed salaries attract more candidates
The commission can encourage reps to focus on introducing new logos or signing longer-term contracts with clients. It is also usually tied to the quota, which then becomes the model for what a rep needs to do to earn their full income.
In a previous story on compensation plansWeisen Li, ActiveCampaign’s vice president of revenue operations, told us that commission works because it brings out the natural competitiveness of sellers.
Dorsey thinks a salary-based plan can achieve the same goals, but more efficiently. After all, less than half of salespeople reach their quota in a commission-based plan. In a salary model, the objectives of the plan define the work of the representative. This becomes what they get paid for, along with their other sales tasks like prospecting, running demos, and updating the CRM.
Representatives are still responsible for meeting quotas, but this puts less financial pressure on completing each individual transaction. This way, it motivates reps to keep working on deals that are taking longer to close. If they do what it takes to engage the buyer, they still earn full pay without having to rush them to close, Dorsey said.
“We’ve missed so many people who would like to get into sales but can’t because it’s a base salary of $50,000 and an OTE commission of $50,000.”
There is also a common belief that the commission-based sales structure attracts money-driven candidates, but Dorsey sees it doing the opposite. While the earning potential may be higher under a commission structure, most money-driven people tend to head into industries that offer a higher guaranteed salary, such as finance.
Offering a higher salary can be a way to attract money-seeking applicants, but it also makes the job more accessible to reps who want job security, Dorsey said.
“We’ve missed so many people who would like to get into sales but can’t because it’s a base salary of $50,000 and an OTE commission of $50,000,” Dorsey said. . “I could have this person if I paid him $80,000 flat. That’s why I think it’s such a flawed system. It’s not producing the results we want and we’re running out of good people.
Salaries can help keep reps at a higher level
The most common concern with a fixed salary plan is that reps won’t be motivated to meet their quotas or that they’ll quit once they hit their goals.
But this does not take into account the responsibility of other employees in their salaried position. A software engineer is motivated to write code and deliver a project on time because if he doesn’t, he gets fired. Similarly, quota becomes a key performance metric for a salesperson.
Dorsey would set a minimum achievement target of 80% of the quota. If a representative does not achieve this goal after three sales cycles, they will be terminated.
It also allows sales managers to maintain a higher quality of sales reps on their team. While a commission is supposed to drive out underperformers, often those reps stick around because they don’t cost the company as much money, Dorsey said.
Meanwhile, offering a bonus for hitting a specified goal against the initial quota can incentivize top-performing reps to go above and beyond their current tasks.
Salaries won’t work for all sales reps
If Dorsey ran his own business, he planned to offer three different compensation plans for sales reps.
The first would involve no base salary and high commission rates for risk takers; the second would pay reps upfront each month, but they would have to give back part of it if they don’t meet the quota to motivate loss-averse people; and the third would be the salary and bonus structure for security-focused people.
Ultimately, there’s no one-size-fits-all approach to motivating salespeople, and compensation plans should reflect that, Dorsey said. A salary-based plan may appeal to some security-driven sales reps, but for those more money-driven, it would be less appealing.
“People cling [commission] because that’s all they know.
Dorsey experimented with a fixed salary approach with a small group of EAs within PatientPop and found success. It has also seen more companies try the same model. While sales compensation plans remain rooted in commission, it’s only a matter of time before more managers consider salaries.
“There’s a decent number of companies starting to do that and I’m watching them,” Dorsey said, adding that he thinks the main lag is the fact that most sales leaders have become familiar with the status. what. . “People cling [commission] because that’s all they know.