Sales commission structure for UK small businesses

You are a small business that has a proven B2B product to sell and direct website sales to prove it. You’ve even received investments from investors excited about your revenue growth projections. But how do you take your small business to the next level, finding these buyers without having to rely on word of mouth?

The obvious answer is to take a salesperson.

But how do you know what to pay them? Obviously salespeople work on commission – the more they sell, the more money they make – but won’t they need a base salary to keep it up? And what should this division be?

This is when you need to decide on a sales commission structure for your small business.

First of all, you need to ask yourself a few questions.

What is the hunter versus farmer concept?

A simple distinction between types of vendors is the hunter vs farmer concept. The type of salesperson you might need depends on the type of business you are in.

Martin Knowles, co-founder of business coaching firm Sales Untangled, co-author of the Amazon bestseller of the same name, defines hunters versus farmers as follows:

Hunters are quick, commission-driven predators in industries such as real estate, used cars, and banking, raptors when it comes to closing deals, who are immune to rejection but have struggling to work in a team. They are lone wolf personalities who hunt far from the pack.

Farmers, on the other hand, are nurturers, good at developing long-term relationships of trust, the strength of which is customer service and loyalty to customers. They are team players where it is much more important to develop relationships driven by their own career development – therefore ideal for the role of sales manager than management oversight.

Knowles, who has worked as a sales manager for PepsiCo, Benckiser, and GlaxoSmithKline, says, “You have different personality types that are potentially needed at different stages in the development of a business.

“If you’re starting a new business, be aware of these different personality types. The person you need to hire may be the opposite type to yourself.

> See also: Five ways to add value to retain your customers

What is a typical sales commission structure?

What do you want your salesperson to achieve?

What type of sale do you want? High volume, low value sales on a short cycle or larger long term trades that require patience and a long term sales cycle. Who exactly are you selling to? All of this will affect the type of salesperson you want to hire.

Can you learn anything from the existing sales figures?

If you already have a sales team, analyze the data. Examine your existing sales figures to calculate and set realistic goals. If you already have sales staff, ask them about what has worked in the past. Where did the challenges appear? What plans motivated them the most? Did any of them cause undue stress?

What is a realistic estimate of performance based on your salesperson’s capacity?

According to Salesforce’s report, The State of Sales, 57% of salespeople missed last year’s quota. Obviously, if you only have one independent salesperson working on a commission-only basis (see below), this will be different from a full sales team with account managers and a sales manager when will be about meeting the revenue targets.

Do you need to add your own skills?

Don’t hire like you. You may need to hire the opposite personality type to yourself

What is the right kind of incentive?

What better way to get your sales team excited than letting them help you design your sales commission structure? Do your staff feel well paid and appreciated for their work? Are the goals achievable? Are they too complicated? Is what you offer in line with the rest of the industry?

If you are losing a lot of staff to competitors, you may not be bidding enough. Compare to Industry Standards Make sure your sales commission structure is up to standard by comparing it to industry standards. Everything works best when everyone is on board and satisfied with their pay.

> See also: 5 Ways To Make Your Website More User-Friendly For Older Customers

Examples of sales commission structure

A sales commission structure, or commission plan, defines how and when a salesperson is paid. This relates to sales, quotas, volume, completion of specific tasks and more. Most plans combined a fixed amount with a variable amount. In other words, part of the salary is consistent, while the other depends on the performance of the salesperson.

One thing to keep in mind is that you don’t want your sales commission structure to reward just one or two high performing employees, leaving the rest of your sales staff to drown. Make sure your plan is designed to leave enough leeway for a top performing player to make money. On the other hand, while you want to push underperforming staff, you don’t want to demoralize them and completely undermine their confidence. It’s a balancing act, which is why a nuanced sales commission structure can work the best.

What are the types of sales commission?

Commission only

That’s what it says on the tin, with 100 percent commissions and no base pay. For a start-up or a micro-enterprise, this structure offers the fastest route to the market.

However, if your salesperson only works on commission, they are not employees. While this will save you money on organizing PAYE, paid time off, and providing perks like a pension plan or health insurance, without any job security, you may end up with ephemeral sellers. They can stay for about a week, but without a basic salary there is no incentive to stay.

Knowles says top salespeople can find a commission-only structure off-putting.

“You’re not going to have caliber commission-only salespeople, they’re going to look for stability elsewhere. You are going to have people who are willing to work for nothing, and you must be wondering why is this the case? Knowles said.

Benefits of commission only

  • does not cost you anything
  • Good for businesses with less complex product / service offerings
  • Good for start-ups that need to save money

Disadvantages of commission only

  • No loyalty to the company
  • High turnover of low quality sales staff
  • Intensive training when it comes to teaching product knowledge

Base salary plus commission

Although base plus commission is the most popular sales commission structure, the breakdown can vary widely from industry to industry. It offers salespeople an hourly or simple base salary plus a commission rate. Typically, the base salary is often too low to fully support a person’s income, but it provides guaranteed income when sales are low.

In Britain the average commission split is 85 percent of base salary and 15 percent bonus commission, while in the US it is more aggressive with a 60:40 split.

Example: A salesperson earns £ 500 a month’s salary with a 10% commission, or £ 500, on £ 5,000 in sales. If she earns £ 20 from product sales for a month, she earns between £ 2,500 and £ 500 in base salary and £ 2,000 in commission.

Base salary plus commission benefits

  • Gives sellers confidence that they will be supported during fallow sales weeks
  • Offers an incentive for sellers to earn more

Disadvantages of base salary plus commission

  • May not appeal to aggressive salespeople who are hungry for healthy commissions.

Guaranteed commission

You may have seen sales jobs with the acronym OTE after the proposed salary. It stands for ‘team income’ and basically means what you can expect to earn once your base salary and average monthly commissions are combined.

A guaranteed commission means a new starter is guaranteed their OTE for the first few months while they set foot under the desk, whether or not they sell something.

Example: Your sales position offers a base salary of £ 1,000 per month with an average commission of £ 2,000 OTE each month. Your new starter receives £ 3,000 a month for three months while he learns the ropes, whether or not he is making sales. After that, they switch to the basic plus commission model.

Benefits of guaranteed commission

  • It gives young salespeople a good start and takes the pressure off them to perform.

Disadvantages of guaranteed commission

  • How long can we expect to subsidize staff? At some point, are your sales people supposed to break even? When do they run out of track?

Laddered commission

This is an even more sophisticated sales commission structure, encouraging sales teams to exceed their goals by earning higher commission rates if they hit certain quotas at multiple levels. This is ideal for top performing, highly motivated sellers with the opportunity to earn high commission rates if they hit quotas. This type of sales commission structure is good for large companies with established and top performing sales teams.

Example: A seller receives a 5% commission rate until they complete a certain number of trades, after which they start to earn 10% commission on new trades.

Benefits of the staggered commission

  • Good for larger and more established sales teams
  • You want to evolve and develop your business
  • Encourages sellers to outperform and exceed quotas

Disadvantages of tiered commission

  • If the tiered commission is capped, once a seller hits their goal, they can’t earn
  • You might find yourself having to pay unlimited premiums throughout the year, creating cash flow problems

How the role of the seller is changing

Like everything else, the pandemic has changed things. For salespeople who liked to hang out and chat with customers, who appreciated selling as a contact sport, who thrived on body language, Zoom calls are tough. Selling on a computer is a different skill. Video calls are shorter, rather than developing a sales pitch you need to get right to the point.

Martin Knowles believes the role of the salesperson is evolving with a growing rift between the traditional ‘push’ activity of closing sales, but now more emphasis on nudge relationships, so it’s more of a nudge relationship. fishing activity. Social media means you can contact create content in more subtle ways and expect nibbles from prospects.

Further reading

How to encourage your business contacts to refer you to new customers

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Romona L. Lopez

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