Some will argue that the senior leadership team in a scaling media business should focus all their effort on strategy. In my experience of founder-led businesses, not only is this unrealistic, but in the particular area of incentivising sales it’s really not helpful.
Your sales team is likely to be a primary vehicle for growth. Ensuring that it is pointed in the right strategic direction is crucial for any scaling business. For this reason, the design and implementation of a sales commission scheme is a critical part of operations for any founder or leader to be involved with.
The benefits of a great sales commission scheme
A good sales commission scheme positively influences the behaviour of your salespeople, focusing them not only on delivering a revenue target but also achieving your strategic scaleup goals.
Therefore, aligning your commission scheme with your scaleup goals delivers a fantastic advantage. It means your sales team will be incentivised to not only deliver revenue for your business, but to also deliver lasting value.
A sales commission scheme will - and should - change the salesperson’s behaviour. The goal is to change it in line with the change you want to see in your business.
There are many strategies for scaling your business and therefore numerous types of commission schemes. It can be difficult to work out what ‘good’ looks like for you. To give you a head start, here are a few of the mistakes and winning formulas that we have seen along the way:
Problematic percentage-based schemes
Offering a straight ‘percentage of anything you sell’ is the place many media founders start with their sales commission schemes. It’s easy to understand why. Such schemes are simple to administer and understand. They are open-ended (i.e. there is no cap to a salesperson’s potential commission) so they encourage salespeople to keep on selling, which is what you want.
In addition, many founders start to build out their sales team with freelancers or part-timers, who are used to relatively low day rates but high commission payments for success. Percentage-based schemes are common here.
I’ve even used this model myself in certain situations, particularly when market conditions made it incredibly difficult to set targets. For example, when COVID hit I ripped up target-based schemes for my recruitment team and used a percentage of what you sell method instead.
But, here’s the thing, straight percentage schemes won’t help you scale your business.
The importance of productivity
A consideration here is that, in order to successfully scale, you will almost certainly need to increase productivity. Productivity may be a dry word, but it’s a key quality of earnings indicator and therefore a word to get comfortable with if you are growing your business.
One way to measure productivity is with the ‘revenue per full-time employee’ and / or ‘revenue per salesperson’ KPIs. You need to increase these to scale. However, this is much harder to do if you are paying out a set percentage in commission against every pound or dollar you generate. In that situation, you are more likely to have to hire more and more salespeople to achieve growth and this pushes up your cost-base.
The alternative approach
So what’s the alternative? The best commission schemes are built around sales targets, and these targets increase as your revenue goals increase but commission does not increase at the same rate. If the business is doing well, you can typically raise sales targets each year, even with the same team selling the same products, because you likely have very reasonable justifications for doing so.
Perhaps you invested in product development or pricing strategy improvements. Perhaps your customers are now more dependent on what you do so they are prepared to pay a higher price. Perhaps you have a strong renewal track record, which can make it less difficult for salespeople to achieve their target. Maybe you have invested in marketing or client success. Maybe you have trained up your sales team so can reasonably expect more from them.
As such, you have likely made many investments which mean that higher targets without a commission increase of the same rate should be an expectation for your sales team.
Link sales targets to career progression
When designing your commission scheme it is worth remembering that salespeople are not only motivated by money. I have learnt a ton from two outstanding B2B media CEOs in my career (take bows Duncan P and Natasha CM). They were both heavily salesperson-centric and sales success-oriented. They wanted their salespeople to feel motivated to succeed and they were also comfortable holding conversations with salespeople which moved beyond just earnings and were tied to the salesperson’s career goals.
In my experience, some organisations underplay the importance of these conversations. The best career conversations with sales teams show a career path, either towards being an outstanding sales leader (i.e. a manager or coach of others) or becoming a brilliant sales professional who handles the largest accounts. (Not all salespeople make great sales managers, so creating a non-management career route is vital.)
On these career paths, the next step should require new skills, increased responsibility, and a higher target, as well as delivering a salary increase. Career progression becomes inextricably linked with increased expectations, making it much easier to increase sales targets in line with advancement.
Communicating the change
Careful design and communication are key when transitioning from a percentage-based scheme to sales targets. To ease this process, one strategy is to start paying commission when the salesperson reaches 80 or 90% of the sales target. These minimum performance thresholds make targets less intimidating while ensuring you don’t start paying out too early.
Another great tool is an accelerator zone that kicks-in once the sales target has been hit. This is where it can be appropriate to bring in a percentage-based element. Once the sales target has been hit and the salesperson has earned their standard commission, you can incentivise them to keep going by offering them a straight percentage of anything further they sell.
Choosing the right time period for the scheme is also important. We favour an annual target, which can be reviewed in annual career conversations, but this can be further divided into months and quarters with a quarterly ‘true-up’ (i.e., if I miss my target in January, I can still reach my overall commission payment for the quarter if I overachieve in February and March).
Other considerations
Commission scheme planning is an art and a science and we’ve just touched on the basics here. Other considerations include (but are not limited to):
- When to use different schemes for managers, or teams
- How to incentivise renewals vs. new business
- Target phasing and how to drive forward bookings.
The effort required to design a great scheme is by far outweighed by the value they deliver in terms of revenue growth with a limited increase in costs, and ultimately increased sales productivity. We have seen many growing media businesses successfully make the switch from percentage-based to target-based schemes and never look back.
Andy Baker is a Practice Lead at Collingwood. He is an acknowledged industry leader in turning around and launching market-leading B2B media businesses. If you want help with building your sales commission scheme, you can contact Andy at andy.baker@collingwood.group.
