Situation: A company hired an experienced individual to sell for them as a consultant. The individual initially asked to be paid on an hourly basis. Results have come with surprising speed. Now the consultant is asking for a commission on sales. How much should you pay a salesperson?

Advice from the CEOs:

• Tailor the commission structure to company objectives. For example, if the objective is to reward new business development, and to retain the individual, try something like:
  • Offer 10% commission on Year 1 sales.
  • If both the customer and the consultant are still with the company in Year 3, the consultant gets a 5% bonus on Year 2 and 3 sales.
  • Repeat this for successive years.
• If the interest is a long-term relationship, determine the nature of the sales services where the consultant excels.
  • What is the individual’s focus?
    • Hunter/Gatherer
    • Contact manager
    • Relationship manager
  • Have a highly qualified sales expert do a telephone interview of the consultant and offer their assessment of the individual’s talents.
• One successful sales model includes one measure to retain the job, and another to calculate commissions:
  • Set a dollar quota for sales performance – if the individual does not hit at least 85% of quota, they lose their job.
  • However, calculate commissions based on the gross profit that their sales generate.
  • This properly balances the focus between revenue and gross profit generation. To succeed, the individual must pay attention to both measures.
• If the individual wants a substantial commission, then don’t pay a substantial base. Instead pay a draw against commissions to allow them to support themselves between sales.
• Pay on receipt of payment, not on receipt of orders.

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