Episode 99: How Can You Design a Remuneration Package that Motivates Your Team

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And engaged teams, Stronger Sales Teams is right where you need to be. Welcome back to Stronger Sales Teams, the place where we provide real world and practical advice to help you develop super powered sales teams. Last week we spent a really nice, punchy 25 minutes talking about strategic planning, how we can execute it effectively within our teams and make sure we build out a program that sticks, but particularly has engagement levels that are higher than if we were to, for example, build out the strategic planning ourselves. That's the most common type of question I'm asked in January, typically December and January each year, is how do I go about strategic planning? But the second question that I am very commonly asked is it's time for performance reviews. It's time to start looking at remuneration packages. What's the best way to incentivize my team to perform this year? So I thought for this January, what better than to roll out a podcast around sales remuneration structures. So today I'm going to draw off some research that I've done across industries myself, specifically for this podcast, but also the vast number of businesses that I've worked with over the last 10 years, but in particular the last 18 months. So I have around about 50 businesses that I've worked with at a one to one level in a certainly a greater detail than a phone conversation. These are formal professional relationships that I've had over that period of and across that time you get to see lots of different remuneration packages and what works for businesses. So without sharing any specific trade secrets or very personal information, I'm going to talk holistically around what works for the majority of businesses in different stages of their evolution when it comes to sales member remuneration. The one thing I will say is that this is not a hard and fast rule that you have to use for your team, but certainly on the most part works in bulk. I would say that Most teams have 5 to 10% of their remuneration packages that are often a little bit different to the industry standard or norms that I'm going to go through now. So please, I really encourage you to find structures that work well for you as your team will respond to best or certainly least little different pivot points that you can use that allow you to build out your own competitive advantage. So let's jump into it. I'm going to work through three types of business frameworks when it comes to remuneration strategies, startup growth phase and mature phase, and really start to talk about the different nuances you can lean into to drive stronger engagement, particularly at a salesperson level. All right, so for the startup businesses that are out there listening, those ones that out there finding their feet, they have the appetite to conquer the world but haven't yet mastered how to bring in the best salespeople. And at this point this is often where we have founder led sales still happening or we have a very new sales team that haven't yet hit straps when it comes to performance around sales numbers. So for me the piece here around founder led or startup driven businesses is that we need to be encouraging salespeople who are absolutely driven by the will to hunt. Finding new customers, bringing in new business is the absolute prerequisite for a startup business unless you have a really healthy source of leads that your team simply need to service. So if you have that, put that to one side, I'll come back to that in a moment. But let's assuming you're like most startups there and you're out there really trying to grow the sales engine, both from a lead generation point of view, but also so your top of funnel activities, but also your mid funnel, your nurturing stages and your bottom of funnel, your closing stages as well. So in these types of businesses base salary is important, but where I see startups really succeeding is by having a very high percentage variable pay. This typically does not include bonuses, but leans more into commissions and commissions can often be up to 50% of business roles of business remuneration I should say here. So we're talking about modest base salaries with a really strong drive for team members who perform. Often I see startups talk about profit sharing or even early equity play options for salespeople that succeeds. But I always talk about these with an element of caution because once we have equity given to team members, it's very hard to take it away. So we want to make sure that the equity we're giving are for team Members who will add long term value to our business rather than providing a solution for the here and now. And that's really important because once we have a salesperson who has that percentage equity, if they're no longer performing and we need to performance manage them out, having equity can get really, really sticky. So if we come back to structures that work, it's absolutely base salary, really strong commission program and often that commission is generally tied back to a straight line revenue number. I don't tend to see as many businesses worrying about gross margin and profit levels at this remuneration point. It's very much about bringing sales in the door. What this means is that the business needs to have strong control over the gross margins it brings in. But certainly where revenue is king in the early stages of startup, incentivizing sales team members for every dollar they bring in is absolutely where I see most success happen. The other piece where I do tend to see return or reward for remuneration structures is around longevity. So bringing people in who are prepared to stick with the business as it goes through the early stages of lower sales numbers, which often means lower salary numbers because the commissions just aren't there without the sales coming in. But there's a reward there for tenure and sticking with the business as it goes through those early phases. So for me they tend to work really well. Base salary, commissions, potentially equity and potentially tenure based remuneration pieces. So that's your startup one covered. Any questions? Of course, you know where to find me and we can talk about it in more detail. For growth driven businesses, and I would say this is the majority of customers I work with, these are businesses wanting to turn on that growth TAB and grow 20, 30, 40, 50%, even more over the period of the next 12 months. For these businesses, they will often run split structures when it comes to remuneration. The first type of remuneration structure they will run is typically for existing business that they want to keep and service well. And in this instance we tend to look for salespeople who are more adept at key account management or filing. And they generally go on to base level packages plus a bonus, plus some other non monetary benefits to stay with the business. In fact, these packages often look like what is offered out at larger businesses or those businesses that are very much in their mature stage of their life cycle. And it's all about having good people who will look after existing customers. Well, they're not there to hunt, they're not there to really drive leads into the business. But they need to have an Attention to detail that make sure customers stay with the business and have ongoing experiences that are really positive. So typically we're going to see a base salary paired with a bonus structure that is tied back to customer satisfaction levels, customer retention and gross profit levels. In this instance, gross profit is really important because we want our existing customer base to be paying for those business expenses as we get out and really try and grow. Right. It is critical to keep that steady so that while we're out there chasing new customers, which is often expensive, the business or the back end of the business is running profitably. So first stage generally key account management, farming type of roles, base salary, bonuses and very much tied to customer performance or customer satisfaction, profit levels and retention. The second type of sales role that we'll have in here or remuneration structure, I'm going to call them REM structure because it's a bit of a tongue tie remuneration saying it so many times. But the REM structure here is very much around similar to a startup level and that's base salary plus strong commissions. Now, these commissions often won't be as strong as you'll see in a startup because we can typically offer a higher base. There's a level of more certainty for salespeople to come to your organization, but we still need to be incentivising those strong behaviors around revenue growth. The difference I'll say to startups here is that commissions will quite often have a gross margin opportunity tied to it. So we might have a commission of x percent, 10, 20 depending on the sales size. The bigger the sale, the lower the percentage. But 2, 3, 5, 10, 20% tied to revenue. But also the ability to upsize those commissions based on an increase of margin. That is a margin goes from 40% to 45%, there's a corresponding increase in sales commission or the same in reverse margin goes from 40% down to 35% and there's a reduction in commission. So salespeople have the opportunity to play with their revenue lines and their margin lines and are rewarded in a corresponding manner to what they bring in the piece. I will say here to be careful on, is that when you're offering extra commissions for increased profit, just make sure that you're not giving away all that increased profit in commissions. If we go from 40 to 45% margin and the salesperson gets an extra 4 or 5%, then we've given away all that profit, right? Typically we'll see 20 to 40% of that profit given away. That is the commission might go up by 1 or 2% with a 5% rise in profit levels and no more. The business needs to make money. The business needs to be incentivised to make money and we also need to make sure that it's obviously balancing out in the books. The second caution I'll have here is that we need to be careful that our salespeople aren't engaging in predatory behaviour and that's going out to drive the highest possible margin in every circumstance when sometimes that will impact the business long term. Yes, businesses are there to make money. Yes, we're there for great shareholder returns. However, if we're pricing deals really high in the first instance, and that is at the detriment to long term business, that can clearly have an impact on our returns down the track. So we just need to make sure we have checks and balances, that our salespeople are still offering the right products at the right, right time, right in the right place for our customers. So long term relationships obviously being integral here. The other piece that's quite important here when it comes to incentivizing salespeople in high growth businesses is that often even within our hunter tier, we will have different levels of capability. We'll have teams who can hunt and bring in smaller size deals really regularly. Then we'll have your big hairy gorillas that know how to bring in serious business and they're often writing 2, 3, 4, 5 times your average salesperson numbers. I'd encourage businesses to look at flexibility in commission and base structures here because these type of salespeople are very difficult to find and when you get a good one, sometimes they need to be rewarded at a REM level to a higher level than the rest of your sales team. I call these career salespeople, career hunters, career gorillas, people that are out there and they just know how to bring in business. So you've really got three opportunities there when it comes to growth businesses. You're farming your key account teams, which is your base bonus, and tying these back to profit and customer satisfaction and retention. Then we've got your hunting team, your standard hunters and your big hairy gorilla hunters who will have bases but higher commission levels and you might have some variability based on their competency levels that they can bring to the team. So very much when it comes to growth based businesses, it's all about making sure we've got the right roles for the right parts of our business and we're incentivizing that growth, but also protecting the baseline levels of our business. So startup growth done the last one Here is mature businesses and there's huge numbers of mature businesses, particularly the bigger businesses that I work with, the multi hundred million dollar businesses into the billion dollar and multi billion dollar businesses. These are the type of businesses that tend to structurally move away from commissions as an opportunity to for remuneration for their salespeople. There's a number of reasons behind it, but where it tends to work is where businesses have opportunities that are greater in smaller businesses, that is career progression opportunities or where they have non monetary benefits that are quite significant. And what I mean by this is that we have businesses who can provide. If you're an insurer and you can provide low cost medical insurance for your customers, if you are a member based organization and you can provide zero cost services to your employees right through that member opportunity, if you're providing gym type of memberships, if you're providing really really super flexible working arrangements or better vehicles or time in lieu flexible holiday type of packages. Right. These are the non monetary benefits that are very valuable to team members. The offside here is that often commissions are replaced with bonuses. So we have base level salaries and then in mature businesses and bigger businesses we have team members being rewarded by bonuses rather than open ended commissions. Interesting challenge here is how do we get great salespeople in based on a bonus that is based on a capped earning potential. And the answer for me lies in the broader package that these mature businesses can offer to salespeople as well as the level of security. Because certainly whilst variable commission rates and the opportunity to have control over your own salaries, while that decreases as you move from startup to growth into mature business, the level of job security often increases. So it's really important that we're able to articulate that as a mature business but also work hard on the non monetary benefits that we can offer so that we're not losing our salespeople out to growth driven businesses where the financial incentive is often more lucrative than the other piece when it comes to mature businesses and incentives and so forth is there's often some share options that are quite different to a startup. So these are smaller share options that seed as you have a period of time with the business or you're hitting results, returning dividends, returning a future level of equity that smaller and growth businesses obviously can't offer. So as a mature business out there, I'd really encourage you to think if you can't be offering commissions, really make sure what you can offer is is compelling on the non monetary side or the non obvious monetary side. Things that still turn into money down the track, but aren't necessarily there at the start. There are certainly plenty of exceptional salespeople who will value that in their REM packages over the ability for uncapped commissions. Okay, so we've got startup, base, heavy commission driven, often an equity piece if you can drive long term value. A growth business where we've got a split between base and bonus and base and commissions, depending on whether you're farming or hunting new business. And also recognising that sometimes we need to bring in those big hairy gorillas to be driving huge revenue line numbers into the team. And the last piece being the mature businesses where often commissions are replaced by bonuses, but the non monetary incentives become really, really relevant at an individual business level. I think they're great summaries that will work for businesses out there. Where it gets interesting is around a number of other frameworks. And the first piece I'd like to talk about is uncapped versus capped commissions. For me, it's critically important that when you're in a growth or a startup business that you're able to offer uncapped commissions. Now sure, when you put these down on an Excel spreadsheet and present them through to a finance team, you know, if your team's big enough, there's always a risk that says, wow, we could have a salesperson earning more than the CEO or we could have a salesperson earning far too much money. The reality here is that there is a certain level of workload that individual salespeople can take on and they generally tend to cap out at certain sales levels. Do your homework. If you know your business, you know where those levels are. But try and find out where that natural capping occurs. And that's when we start to see that salespeople will hit a natural ceiling just simply from workload. If you are dealing in really big sales numbers where winning one deal a year or two or three deals a year is the norm, but certainly if a salesperson wins six or eight, then their salary numbers are going to be huge. I just encourage you to think about what that might do for your business. And if in a one off year a salesperson earns a huge amount of money, if that's business changing, then perhaps it's worth considering. But certainly offering uncapped commissions the more you are focused on growth, I think is incredibly important. And you'll find that salespeople tend to migrate towards uncapped packages far more than those that are capped. When you're looking for that growth, that's number one. Number two is when we're designing total REM packages, that is the total on target earnings or the amount of money that we'd expect a salesperson to earn if they hit their targeted revenue numbers. I use a couple of frameworks to make this work. So let's say you had a salesperson that you're looking to earn $150,000 as their total package. For me, they need to be delivering a minimum of 10 times revenue on that remuneration package. Now I will say here it's an absolute minimum because if you are a low margin business, that is a 20% margin business, a 10 times revenue line is simply not enough because then half your costs below your gross margin line are attributed to salespeople. But certainly when we're talking very standard 35 to 50% business margin levels, a minimum 10 times revenue for hunting types of salespeople is absolutely a baseline flaw we can use when it comes to designing remuneration packages. Personally, I've always worked on trying to design a 20 times revenue level. So for 150,000, we're aiming for a minimum $3 million in revenue. But every business is different. So you can use that or take that with a grain of salt. Where we do have low margin businesses and we're not comfortable designing packages based on a multiple on revenue, I'd encourage you to look at it via a multiple on gross profit levels. So if we're $150,000 salesperson, I'd be looking at a minimum five times gross profit. That is they're generating at least $750,000 in gross profit for the business every year. Typically this tends to sit between five and seven. So if you're a $250,000 a year salesperson on target earnings and you're generating at least $1.25 million for the business up to 1.75 and beyond, I find this works really well when it comes to lower margin businesses or businesses that are providing quite a degree of scope to their salespeople when it comes to pricing in margins. So where they do have significant scope, I'm generally going to be suggesting that their incentives come based on gross margin rather than top line revenue. That keeps them very focused on on generating gross profit rather than just revenue alone. Next piece here from a framework is to consider when you're paying commissions monthly, quarterly, half yearly or annually. Generally quarterly tends to be the mid ground that works for businesses and salespeople. Not too much admin, but salespeople are rewarded quickly enough for their effort. But the other piece here that's interesting is are they paid on sale or installation? I've been in many debates where companies are trying to work through if they should pay the full sales commission when the sale is made, or whether they make the salesperson wait until full installation, which can often be months and months and months down the track. A middle ground here that I've seen work really well is that it's paid once deposits made, if it's a fast installation turnaround or if it's a slower installation that the commission's paid once the second progress payment's made or when work start on site can be a little bit more difficult to manage and it will depend on your number of transactions. But certainly the longer the installation cycle, the more I'd encourage you to get creative around when commissions are paid because it genuinely I've seen it upset so many salespeople and really decrease engagement when they're waiting months and months and months for commissions on sales. Okay, so there's three frameworks so far. I've got three more certainly encourage businesses to look at providing incentives for self generated salespeople leads versus company generated. I often see businesses pay extra percentage points in commission or bonuses. If teams or individuals can be generating leads themselves, they're cheaper for the business. So investing a little bit more into your salesperson is well worth doing. Next piece here is around cars versus allowances. Again, it's a very highly debated topic. I'd encourage you just to use your judgment here. If your industry is generally providing allowances versus cars, look at allowances. If your industry is generally cars over allowances, then you can probably work there. I am absolutely seeing a trend towards car allowances now as people are starting to work more and more from home and for the most part, if in doubt, I generally suggest an allowance over a car easier to manage, you don't need people in the business to run it and the car becomes the employee's responsibility. Okay, Last but not least, and I mentioned this earlier, is when you have your remuneration packages being created, I'd really encourage you to recognise that within stages of your business or within your teams, you might have different competency levels of salespeople. So even at an individual salesperson level, we're going to have a banding for your base level salary. But I'd really encourage a banding for your commissions or bonuses as well because really good salespeople are very hard to find and when you do get your hands on one, they are worth their weight in gold. So I'd really encourage you to have a level of flexibility that allows you to bring in those high, high sales performers or career salespeople without being too structured or rigid around what you can offer. So there you go. There's a significant amount of information there when it comes to remuneration. Lots and lots of things to talk about. I've stayed away from the cultural benefits of businesses today and focused purely on the REM levels. I think there's a whole episode on the cultural piece itself, but certainly if you've got questions around startup growth or mature businesses of which we're phasing more from commissions through until bonuses and non monetary benefits, please let me know. And same goes if you're wondering around structuring your total package around sales or gross profit numbers, I think that's always worth a discussion and we can talk through that in more detail. That's it for today. A lot in that last 25 minutes or so. I hope you've taken notes. Transcript is available@strongersalesteams.com podcast if you need it there. Otherwise you can also get it through any of the apps that you're listening on now. Until next week, please keep living in a world of possibility and you'll be amazed by what you can achieve. Bye for now.

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