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How Should You Compensate Your New Business Person?

Posted by Mark Duval on Jun 9, 2016 7:00:00 AM
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This is the second post in our series about how to hire a new business development person for your agency. Read our first post here.

How should you compensate your new business person? A key tool in your fight to attract, hire and retain the type of high-quality salespeople you need to grow your agency is the compensation package.

Before you hire a new business person for your agency, you must map out a compensation plan. There are many different views on what a compensation plan should look like. Keep in mind that a poorly-structured compensation plan can make your new hire feel undervalued and discourage them from delivering their best performance.

Examples of compensation plan problems:

  • You hire a new business person on a compensation plan with an aggressive salary/commission split (e.g., 40% or higher commission). This person agreed to this compensation split based on the understanding that 90-100% of their time would be devoted to new business activities. But in fact, they are being pulled into activities that do not support new business, demanding a significant chunk of their time and hurting their ability to earn.
  • You are using a recycled compensation plan from another company, another decade (or maybe both). The compensation plan awards commissions to the new business person when they close a certain type of new business, such as a long-term contract as agency of record. But in reality, most of the available new business is now smaller-scale and project-based, which is rewarded at a lower rate of commission, or perhaps not at all. So the salesperson is put in a no-win situation, perhaps giving up or chasing long-shot business they are much less likely to close and which may not even be a good match for your agency.
  • Your compensation plan is too commission-heavy (50% or more commission). Qualified new business professionals who could be a great asset to your agency are disinclined to apply, because the split is too aggressive and puts them in a vulnerable position. Experienced salespeople know they will be unlikely to close new business in the first six months or more (depending on the sales cycle) due to the time needed to ramp up, cultivate, and nurture new leads before they close.

For a commission-based compensation plan to be effective, it should reward good work that is realistically closeable by the salesperson if they put in the effort to do enough activities with the right leads to bring in new business. Incorrectly structured, it can make your new business person feel resentful and frustrated, not to mention stressed out over whether they will be able to cover their basic costs of living, which will interfere with their ability to perform. Commissions should not feel punitive to a salesperson — at least not if you want to keep them.

When a new business person is the odd one out in an agency setting (perhaps the only person dependent on commission, and/or the only person working on new business generation), it is easy for shortcomings and conflicts in their compensation structure to go unnoticed. Keep in mind that keeping your salesperson motivated (which is in part about compensation), is a delicate balancing act. Unmotivated, discouraged salespeople will not deliver the results you want.

It is a good idea to review your compensation plan with your new business person at regular intervals (quarterly, or at least annually) to confirm it still best serves both of your needs and evaluate whether any changes need to be made.

When should you work on your compensation plan?

It is important that your compensation plan aligns with:

  • Your new business person’s responsibilities as outlined in their job description
  • Your agency’s new business goals, objectives, and realities

Because it must be consistent with your job description — and, importantly, be defined in the job description — the time to lay out your compensation plan is before you advertise your position. A disconnect across these different elements will undermine your outcomes by leading to decreased revenue, failure to meet goals, and inability to extract the best performance from your new business professional, or retain them.

K.I.S.S. (Keep It Simple Sales) Compensation

When it comes to sales compensation, the simpler, the better. Keep terms in black and white to avoid future confusion and frustration. The path to qualify for a bonus or obtain a commission should be crystal clear, with no surprises. Here are some thoughts on what to include when structuring your compensation plan.

Establish an overall compensation number. A good rule of thumb is to provide a salary for 60-70% of the total compensation plan. Be careful that the structure you choose aligns with your goals. You don’t want to over-compensate on the base salary, but keep in mind that if it is too low you will not attract the caliber of talent that you need. A “bargain” hire that doesn’t perform is a less sensible investment than a more expensive hire who has the experience and connections to pay for themselves many times over.

You should have a commission percentage in mind, but know that it may need to be adjusted in the hiring negotiations, depending on the candidate. In addition to the agreed-upon commission percentage, decide whether you want to pay commissions over a period of one or two years. Remember to specify that commissions will be based on the net or AGI resulting from the deal.

TIP: Avoid using a descending sliding scale for commission percentage (i.e., 6% for closing up to $300,000 in new business; 5% for closing between $300,000-$500,000; 4% for closing over $500,000). Though some organizations use such a scale, for obvious reasons it will de-motivate your salespeople and end up working against you. Your compensation plan should incentivize the behavior you want, not work against it.

You might want to build in some additional bonuses in the first year as it will take time for your new hire to ramp up before they can be reasonably expected to generate revenue. If your new hire is only making a salary (based on 60-70% of their total planned compensation) with little chance of reaching their “all in” figure they may become discouraged long before they have a chance to bring in new business.

You may decide to put an additional bonus on some high-value targets. Set clear expectations around how they will qualify for the bonus and compensate accordingly. If you find this to be a productive model, keep it in place moving forward. There are lots of creative ways to reward sales performance that goes above and beyond stated expectations.

Other common examples of bonuses:

  • Discretionary bonus tied to agency performance
  • Meeting bonus for meetings with a decision maker, where the opportunity is qualified with a known budget to be spent in the next six months (realistic chance of closing)
  • Getting a meeting, or closing business, with someone on an approved prospect list (or, alternatively, with a prospect who meets a pre-approved set of criteria)

Keep in mind when setting these bonus rewards that you should concentrate on better clients, not always bigger. A smaller client that expands your areas of expertise, a client that provides a higher margin, for example. Look at your current list of clients and think about what you need to do to grow your agency roster. Whatever you decide, just remember to keep it black and white and simple. It should be very easy for everyone to understand what qualifies and what does not.

Ultimately, it is just as important for the salesperson as it is for the agency that they can demonstrate how they engaged and positively affected the agency’s business. When you ensure your compensation package is consistent, clear, and attainable, you have a better chance of attracting and keeping a new business person who will perform.

If you have other ideas about compensation for agency new business professionals, please share! I would love to read them in the comments.

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This was originally published on LinkedIn Pulse by Mark Duval on May 19, 2016.

Image credits: sifotography / 123RF Stock Photo; modified by resizing and text overlay.

Topics: Hiring an Agency New Business Person

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