How should sales staff be paid commission?

By Becky Roberts Thursday 21 March 2013

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While a percentage of the job value is still the most common way to pay a salesperson's bonus, there are arguments for adopting other methods.

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How to pay sales staff commission

Give a salesperson a fish and they will eat for a day. Give a salesperson a net, and they will want to know how much you are going pay them per fish caught. After all, if they are going to start catching fish for you, where’s the incentive for them?

This is the reality, and always has been, of employing a salesperson. Shortsighted though it may be, they expect reward for helping you create a profitable business; despite the fact a more profitable business eventually benefits them, too, and despite picking up a salary to do just that.

In print, this long-accepted status quo is looking vulnerable. With margins low, and added-value work increasingly important, print owners are getting more savvy with commission. Some are implementing innovative procedures to ensure a salesperson is worth their reward, while others have withdrawn the commission incentive altogether. How this shift turns out may well prove integral to how the future print landscape develops.

That a salesperson is worth a commission while a press minder or designer is not is obviously debatable. What a salesperson – and supporters of commission – will argue is that for the success and growth of the business, you need your salesperson to go the extra mile – beyond their salary level – to bring in work and you need to motivate them to do that. Giving them a cut of the sale means they are more likely to go above and beyond the level that their salary drives them to. For other jobs, goes the argument, this is less important.

Mark Gray, sales director at Real Print Management, though, believes this arrangement has got out of hand.

"It’s at the point now where it’s almost like a ransom note that says ‘if you pay me extra, I will knock on that person’s door and win that order’," he expains. "Also, as in any job, a salesperson signs a contract and we expect certain things of them. Why should salespeople be incentivised any differently from, say, a designer?"

Gray opts instead to pay a high wage that carries with it high expectations – and no commission. If those expectations are not met, then, as in any job, there are consequences.

This goes very much against the norm of paying a low basic salary that is supplemented by commission-based rewards. According to Lance Hill, group sales and marketing director at 4DM, the latter method "is the scenario used by eight out of 10 companies in print."

 

Make the most

Eclipse managing director Simon Moore prefers this system; although he admits that it’s probably not the least expensive way for businesses to pay their staff, it’s more important to get the most out of your team, which in turn creates more revenue, he claims.

"Over the past year, our sales increased by 22%; and in the year before that, by 15%, so I’d say it works. There is a desire to earn more money both for themselves and for the business," he says.

Kevin Stewart, sales director of MBA, says simply paying a salary rather than a commission model is also a tricky situation to manage.

"It’s very hard to find someone who won’t just get comfortable and stop going after new business," he says.

But while these companies are in favour of commission, though, that does not mean they are still thinking of it in the conventional sense: a percentage sign that swings over every sale.

This ‘straight’ commission causes a number of issues for printers. For starters, it does not take margins into account.

"One of your team might bring in a £1m order, but if there’s no added-value element to make your margin on, it actually isn’t worth as much as a £10,000 order that has a really high margin on it," says Kathy Woodward, chief executive of the BPIF. A percentage commission, then, does not always make financial sense.

Gray says a similar problem arises from the fact that how you manufacturer a product can change last minute, but you cannot change the commission.

"If I quote a customer for 1,000 brochures for £500, and it’s going to cost me £350, I will receive a £150 profit and may give £25 to the sales rep for bringing in that business. But if for some reason I can’t do the job the optimum way because I can’t use the machine I wanted to, it may then cost me £425 and I’d still have to give the rep the agreed amount," he explains.

Also, he adds, straight commission levels are difficult to set in sectors such as print where the finished products can differ enormously from one day to the next.

The answer to this tricky quandary is to try and devise a commission structure that is more flexible and better suits the particular business’s parameters.

"We work out sales targets on what margins we need to make to pay the bills. This way our guys are incentivised to bring in profitable margins based on what we need. Anything achieved beyond that is a bonus," says Aquatint managing director Roger Severn.

As Severn highlights, commission targets need to keep shifting month by month to push staff in the different directions according to what your company needs to achieve. This could be to chase repeat business, or focus on sales of a particular product line, or, perhaps more importantly, to go after new clientele. If you have excess stock or a quiet month on a machine, you could also channel sales commission.

For Severn, the incentive is often to bring in new customers, not to just retain repeat work from existing clients. "We want to incentivise staff to create new accounts rather than just plodding away at the same doors," says Severn.

Hill agrees: "You don’t want them to sit at a steady pace and just go after the same clients. They can’t afford to take their eye off the ball."

Also important is to avoid giving the same rate every time on the margin achieved. It could be adjusted to comply with turnover, or to reflect the time of year or type of job. In time, this should give the added bonus of the salesperson being more in tune with your business, too.

Some argue that it is not all about money, either. Increasingly, other benefits are proving good motivators.

"I’m a great fan of tailoring packages to suit the personality of individuals," says Woodward. "You should look at a ‘cafeteria’ of rewards and identify what people value in their lives."

Stewart agrees: "It’s a two-way street and you have to appeal to what motivates the workforce. Some people prefer cash incentives and others are happy as long as they have a company car."

Businesses have also been known to offer gift cards for staff members’ favourite shops, an extra day of paid leave and even an expenses-paid holiday.

 

The extra mile

Whatever the reward, though, a crucial element of any commission strategy should be the understanding that earning commission shouldn’t be made too easy. The majority of businesses apply a threshold on the level of turnover before staff can start earning it, meaning that they can only receive extra payment when they exceed company expectation. "It’s all about going that extra mile," says Severn.

It’s also important to set targets for each individual to get the most realistic and achievable quota from each person and, additionally, Moore highlights the importance of not capping what they can achieve. "This way they can strive to generate as much as possible and it’s open-ended," he says. The extra reward, after all, should be paid for by the extra work brought in.

Admittedly, commission structures like these demand a lot of administration to succeed, and while big companies may be able to afford that time, Severn fears smaller companies may not. "With a bigger company you have the resources to manage and track targets and progress on a more sophisticated system," he says. With a smaller business, there may simply not be enough time to micro manage sales people in this way.

Hill, who has worked for both small and big companies in the industry, disagrees that small companies are at a disadvantage, claiming the model works for both small and large companies.

"To get the most out of any sales person you have to motivate them. It’s the same principal," he says. "We are a £40m-turnover company and I don’t see why the same couldn’t be applied to one with a turnover of £4m."

Aside from management concerns of implementation, there are other things to be wary of, too, when installing new commission structures like these. For example, while it’s important to change target areas, staff de-motivation could occur if they shift too frequently and staff become disconnected to the vision of their goals. Also, what works for one person may not work for another and schemes may decide to give different commission to different people. Hill says his team get the same deal so it’s fair to everybody, whereas Severn awards more to those who have achieved ‘harder’ targets.

Ultimately, how a company pays it sales staff will be determined by how well that method works for the business as a whole. If paying a high salary with no commission works, then adhering to the standard model of paying commission should not be indulged. But for the majority of print businesses that do pay sales teams commission, it seems sensible to look at that standard model and adapt it to the modern day reality of print.

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