How Sales Commissions & The Right Compensation Plan Help you Grow Your Business

Kathy (host):
Welcome back to another episode of help my businesses growing a podcast where we explore how to grow and build a business that is healthy and sustainable. I’m your host, Kathy Svetina. So business grows, and you start to hire salespeople to do all the sales activities for you, you’re going to have to set up a well-thought-out commission plan. Unfortunately, too often companies have confusing, unclear or just plain wrong commission structures for the business model and the industry that they’re in. The challenge with setting up a commission structure is that there are so many different variables involved. And it’s really easy to miss something important. You want to be fair and provide the right incentives so that you can attract and retain the top salespeople. But you also need to make sure that it makes sense for your business as well. 

Kathy (host):
In this episode, my guest is Chris Michel. He is an outsourced sales manager that helps business owners who are self-managing sales and shouldn’t be. He has been around sales and management for 30 years, primarily in the HVAC world. And we’re going to be discussing topics such as what is the best time to start hiring salespeople in your business? What should you as a business owner, look for when you hire these salespeople? How do you set up the commission structure so that it makes sense for your business model? And also, if 100% commission-based model is right for you? Join me.

Kathy (host):
Chris, welcome to the show!

Chris (guest): 
Thank you, Kathy. It’s great to be here.

Kathy (host): 
Awesome to have you here. Today, we’re gonna be diving into the topic of sales and commission. And I’m super excited to talk to you because you’re such a wealth of knowledge and information when it comes to these topics.

Chris (guest):
Thank you.

Kathy (host):
And you’re welcome. There’s a lot to talk about. And I want to jump right straight into it. When it comes to sales, when do you think it’s the best time to actually start hiring people who do the sales specifically versus having someone who’s already in the business doing the product or service delivery doing the sales.

Chris (guest): 
Yes. This gets to be a tricky situation, right? Because you, let’s just choose a business owner, for instance, right.  You have a business owner that is delivering the sales, as well as the product, they’re doing all of the work, right. They’re the solopreneur or their small business, and they are fighting tooth and nail to get everything done. They do an okay job with sales. But now it’s to the point where if they don’t give somebody else the reins on sales, then they just won’t have the ability to really jump out there and do the things that they need to, right, and to grow the business they should. It’s going to be different for different businesses.

Chris (guest): 
But you’re going to reach a saturation point where quite frankly, you as a business owner can’t do much more. You need that extra person or two people, right, as salespeople that are strictly focused on bringing you business. They don’t do anything with production. They don’t do anything with the service. All they do is sell. And that’s when it’s time when you get to that point to that teetering point where you go, “Oh, man, I just, I’m stacked, right? I only have so many hours a week, I can only do so much.” And you’re not staying up till midnight every night and you’re not, you know, getting up at four in the morning to make all this stuff happen. That’s really kind of the pushing or the tipping point, if you will when you need to consider bringing on somebody for individual sales.

Kathy (host): 
It’s being aware of your own capacity and the capacity of the people that you already have in the business, whether you have the capacity to do the sales, and the people that you have in the business can do that. Right?

Chris (guest): 
Yeah, exactly. And this, Kathy, gets back to number one, if you don’t have a coach, you probably should get one, right? I mean, we all should have a coach. I’m not saying that-

Kathy (host): 
Is that a business coach or a sales coach?

Chris (guest): 
Yes, it could be a business coach, it could be a sales coach. But I think for all of us, we all need some sort of a coach in our life. Whether it’s a business coach, a life coach, whatever, right? Because we need that third-person perspective. We need that out-of-body experience that can take that 10,000-foot view and look and go, there’s the hole, right? There’s where you could expand or …  make these things different and you could grow your business. We need somebody with an objective view. And we’re so subjective. It’s our baby. It’s our business, right? And, as solopreneurs or entrepreneurs, we’re the ones who are making this thing happen, and we’re doing everything but if you don’t have somebody to bounce ideas off of, then you don’t know when to make that shift.

Chris (guest):
Having a coach makes that shift easier, right? It makes it more evident to you, right? I know business finances, enough to get myself in trouble. But if I don’t have somebody like yourself in my business, helping me to understand “Here’s the direction You need to start heading because of this, this and this.” Right? If you want to do these things, and it’s the same with sales, if you want to do these things, you need this, this, and this, right? You need somebody to kind of push you out of your comfort zone and get to that next step, or that next level, as they say.

Kathy (host): 
Yeah. I think this is mostly the case of you just don’t know what you don’t know. Having someone who really can take a look at your business from a 10,000-foot perspective, and look at it from an outside view, and say, “these are the holes that you need to fix can really benefit you because, again, you just don’t know what you don’t know.”

Chris (guest):  
Right. And it could be a sales coach, it could be a finance coach, it could be a marketing coach, right? I mean, it could be just a business or a life coach. But it needs to be somebody with an outside view. And no offense to your spouse, or to your best friend.  Those probably aren’t the best people to have been involved in this because even then there’s still a little too close to the situation that can, … unless they’re really good at that … jumping into the objective perspective. 

Chris (guest): 
But typically, you want somebody who’s close enough, but not necessarily in your tight circle of friends. You need somebody just on the outside of that because they’re going to say things that are going to offend you. They’re going to say things that are hard for you to hear. And you need to hear, you need to listen to what they’re saying. This is just one of those things, right? So it’s just, it’s an opportunity.

Kathy (host): 
Yeah, that’s true. And I always say “You don’t want to hire a yes person. You really need someone who’s going to push you out of your comfort zone, because it is uncomfortable.”

Chris (guest):  
Right. Yeah, I had a client this morning, a potential client, I should say, I met with this morning. I went in with the mindset that I have nothing to lose. As an outsider, I have nothing to lose, right? As a coach, whether I get their business or not, is it’s not up to me. But it is up to me, right if I really want it. But if I go in with the attitude that I’m here to help you, and I’m going to say some things that you’re not going to like, and they got upset, not in a bad way. They were like, “Oh my gosh, I didn’t realize if I don’t do this, then this is going to happen.” Right? It was one of those eye-opening situations for them that kind of gave them that ‘aha’ moment. Right?

Chris (guest):  
I love those ‘aha’ moments, personally, as well, not just from my perspective giving it to them, but also when I go “Oh!” You know, it’s- Kathy, you and I had conversations, where you say, “Oh, are you using this? Are you doing this? Are you trying this?” And I go “Wow, that’s perfect. You’re right. I didn’t even think about that.” Right? Or “it didn’t even dawn on me that that was available to me.” Because we just don’t know sometimes, as you said, we just don’t know what we don’t know.

Kathy (host):  
Yeah. Now that you’ve, let’s say that you figure out you need the salespeople, you need dedicated people, one or two people in your business to actually do the sales activities. What are some of the things that you should be looking for when you’re hiring a salesperson? What makes a good salesperson?

Kathy (host): 
That’s a very fact topic.

Chris (guest): 
Some would say arrogance. No, I’m just kidding. Yeah, it’s a great question. Because there’s so many options out there, right? There’s so many people that want to get into sales, and they think they’re good at sales. They’ve been doing sales for two years, and they’ve had some success. All of a sudden, they become an expert. That is not necessarily true. They very well could be. But one thing I’ve learned is never call yourself an expert. Let somebody else do that. Right? So-

Kathy (host):  
Very true.

Chris (guest): 
So with sales, I think I’m decent at hiring people.  I think I can see and read people and part of that comes about my 30 plus years of experience in sales, right? Because you get to read people and you get to see things. I will tell you that my hiring percentage is still 50/50, and that’s what’s crazy. But I have somebody that I know and that I work with, that if I really want to go find a good salesperson, I’m going to engage this particular person or this company, and I’m going to say, “Hey, guys, we need your help.”

Chris (guest): 
There’s all kinds of personality tests that you can do. There’s all kinds of metrics that you can look at. But there is this company that I use, and they have it to where they guarantee the hiring of an individual, if they meet a certain criteria, a certain level, they guarantee that they will work for you. What it shows you is are they even capable of selling? But do they want to sell, not just are they capable? But do they want to? Right? It all comes kind of full circle too.

Chris (guest): 
Sometimes you get the guy or gal who’s 50, 60 years old, and maybe they’re kind of at their end of their game, right?  They just say “I’m tired. I don’t want to sell anymore.  I want to do consulting or management or whatever.” Right? And so they’re not a good candidate for a salesperson. Could they come in and sell for you? Absolutely.

Chris (guest): 
But at the same time, do you want the 20-something that’s hopefully they’ve gone through, they’ve got these college courses now where you can actually become a salesperson, right? That’s a degree program. That’s part of the programs that they sit out now. And it’s like, finally, right? Somebody has a degree program. But you get these folks out of college. And they’re steps ahead of where they would have been had, you know, where I was. I couldn’t study sales in college. I studied speech communications. I learned how to talk. Thank you for laughing at that. But yeah, I really did. I learned how to talk in college. But one of my favorite classes was persuasion. And I found out that I was actually good at persuasion. And that’s part of sales, right?

Chris (guest): 
You have to know, how do you find a good salesperson? Well, number one, they’ve got to have a background, and no offense, their resume isn’t necessarily going to be the end all be all, that’s a great place to start. But, you know, what are they doing against their goals, against the metrics against the KPIs against the things that they were put in front of that were out there for them to achieve? Right?

Chris (guest):  
And not only that but then do they take direction? Are they a high I person or a high D person, or, you know, the disc profile, right, DISC.  All of that comes into play as to whether or not they’re going to even be decent for sales. I mean, there were folks that were high Cs, or high Ss that I was like, “I don’t know if they’re gonna make it.” And they did well, right, because they knew how to take what they had and the personality that they have, but they knew how to adapt to the people that they were talking to. They’ve got to be able to adapt. They’ve got to be able to answer and ask really good questions.

Chris (guest): 
Resiliency and I will tell you, if you can find somebody who’s been living on 100% Commission, for a good portion of their career, they’re probably a really good salesperson. Because not many people want to live on 100% commission, nor do they even get excited about the prospect of 100% Commission, right? I mean, when you talk about you eat what you kill, a lot of people go, “I’m good. I really want a security blanket base, right kind of thing.” And it’s like, if they’re really good at sales, guess what, they’re 100% commission more likely.

Kathy (host): 
This is a great segment into my next question that I had. You really light it up well for me. You know, when it comes to compensation and commission structure for the salespeople, if you really don’t have the right structure in place, it’s so difficult one to attract the right top performance, and your best salespeople might actually leave because they’re going to have better opportunities elsewhere and there feel there’s no wait for them to earn more money in your company, or get promoted. Striking the balance between being fair and providing the right incentives. But also, how do you make sense that it actually makes sense in your business? What are some of the elements of a good commission plan structure for your salespeople? What are some of the things that people should be thinking about when they’re putting that together?

Chris (guest): 
I never should have brought up commissions. No, it’s a great question. Because you’re right, there are certain compensation programs that I’ve looked at the past. And I went, “Yeah, there’s no way I’m going to do that.” Because there’s no way you’re going to compensate the things that I could do. I walked away from a job and I was recently reminded of it from my former boss.

Chris (guest): 
I was working for a food processing equipment company at the time, and I was paid a base salary, plus a percentage of the commissions. But it was based on the gross revenue, the gross profit revenue that they made off of the jobs. That was a very interesting situation because I needed to make X amount of dollars in sales, which the territory had never done, which not sure that the territory could have done at the time. But like I said, I was reminded recently by a friend of mine, who’s he’s a friend, but he was my boss at the time. And he came back and said, “Hey, by the way, we’re averaging multimillion-dollar sales in each one of the territories now and your concern was now.” That was 17 years ago. Okay. In my defense, it was 17.

Chris (guest): 
So, to get to the question about what, how do you know what a good comp plan is? One thing I will share with you is, and this is going to be hard for business owners to understand and to appreciate. If you have a good salesperson, they’re going to make more than you. Okay, I’ll say that, again. If you have a good salesperson, they’re going to make more than you. You have to be okay with that. Because they’re going to drive revenue to your business that you couldn’t do. Right? They should be paid a portion of that commission or that a portion of that revenue that they drive to your business.

Chris (guest): 
Now, there comes into the question of is my pricing right? How do I know if my pricing is correct to pay the commissions that I want to pay these people or to pay them out, you know, the bonuses or the all these kinds of things come into play. I think there ought to be bonuses that are set up if you hit a certain goal. There’s a target out there if you need 2 million in sales for the year for the month or for whatever, right, then “Hey, they hit the $2 million, and they go 2.5. Hey, awesome job, you get a 1% kicker or a half percent kicker, depending on the business and all that other stuff.”

Chris (guest): 
But there are ways to set up programs. And it again, it’s gonna depend on the business, I hate to give the HR response of. It depends, but it really does. Because you may want to give somebody a $30,000 base and a 5% commission on everything that they sell, you may want to do a tiered commission program, meaning on the lower end equipment, you are lower-end products, you’re going to give a smaller commission made three, maybe 3%, or 4%. And as they go higher on the scale, they get more for what they do. Now, there’s a balance in there, right? Because you can’t price yourself out of the market because you’re paying 10% or 15% commission on a product that you can’t garner a 50% margin on, right? There’s all kinds of things that go into that equation.

Chris (guest): 
But a lot of times, it’s what you’re going to find is you’re going to find that there’s probably some sort of a base or a draw-against commission. Then you have this commission structure that’s set up, that will make sense to you, to your business, to the industry that you’re in, right, because software sales is going to be a different commission plan than hardware sales, in computers, or even in equipment sales, for food processing, or in heating and air conditioning or in televisions, right, whatever. But they’re all going to be a little bit different. You’ve got to find what works for you in the industry. You can find a lot of information out there, by the way, on commission structures for your different industries. In some of these places now, like glass ceiling and, not glass ceiling,  glass is it a glass door, trying to remember that they’re creating.

Kathy (host):  
Yeah, glass door.

Chris (guest):
Yeah, glass door. Some of these other recruiting locations give you an idea of compensation programs and how that works. And do you give them a company car, right? Are they going to be traveling in a territory? Is that part of your compensation program? Do you have benefits? Do you not offer benefits? Right? All of that is going to be part of that compensation. But in terms of the commissions, it’s a lot of it comes back to the industry and what going on with the industry.

Chris (guest):  
You may not be the top person, you may not be the bottom, but you definitely want to figure out, is it 2%? Is it 7%? Is it a mixture? Is it just something flat across the board? Right? What makes sense? … How does this base, this small base work into it, if you’re going to offer that, right? Is 18,000 a year, that you offer a small base just because you don’t want them to starve, but at the same time, they’re not gonna be paying all their bills with that?

Kathy (host): 
Yeah, that’s a good point. And to that, it’s really important to understand your business financial, so that you can actually model these different scenarios. Don’t get married to just one particular one, take a couple of them tiered approach, or whatever it might be, and plant it financially. So you can see how your business is going to look like with all these the different scenarios and pick the one that makes the most sense for you.

Chris (guest):  
Yeah, and that’s probably where you come in, where you know, we can have the conversation you and I can have this conversation to where you talk about how on a compensation program, for instance, when I was helping run heating and air conditioning companies, right, and I was setting up Price Books. You have to build in a margin for your salespeople, right? And the comp program has to be built into your pricing. And there’s ways to do it. There’s spreadsheets, and you know, right, there’s all kinds of things that will work. You understand this, I’m sure far better than I do from the P&L standpoint. But that all has to make sense. Because if you don’t have the comp program built into your pricing, you’re losing money as a company, right?

Kathy (host):  
Yes.

Chris (guest): 
You’re giving away money. There’s spin-off conversations that are happening in my head, by the way. But one of the things I’ve learned is be transparent with your salespeople. Help them to understand, “Here’s the money that we put into the program, here’s the money that we’ve built into this product for you to sell it. If you come off of that price, your commission goes down the company’s percentage goes down as well.” Right? If it’s one to one or two to one, right, the company gives up two points for every point that you lose, whatever that is, right.

Chris (guest): 
Make sure that it’s equitable, but that you’re open and honest about it, that you’re transparent. When I’ve done that with people, salespeople go “Okay, I get it. I may not like it all the way. But I get it.” But it also drives the behavior. Because you don’t want to encourage the sales team to drive,  profits down into the tank where you’re not making any money because they’re giving everything away, right? They’re giving 20% off and you’re still paying a 5% Commission, who just want in that scenario – a sales guy. The customer really, but she was a business didn’t.

Kathy (host): 
And the other the other point that I want to make here to what I’ve seen in companies is it really benefits as well if you have it well-documented and well-communicated. Because if the rules change, especially in a smaller businesses, the rules change from month to month, and salespeople have no idea and the targets keep changing, that decreases the morale, the salespeople are just going to be demotivated. They’re going to be looking at places that they can go. Having that documented and clearly communicated, and having the set target it doesn’t move is something that a business should be striving for as well. Did you agree with that?

Chris (guest):  
Absolutely. Yeah. And that’s one of the things I’ve seen is, you get these companies that go, “Oh, let’s raise the commission rate to 7%. Oh, gosh, that’s not working out.” Two months later, they go, “We need to bump it back down to 6%.” Right. And then it may have been 4% to start with. All of a sudden, you’re starting to play these games with their money and they go “Wait a minute, I can’t even predict what I’m going to make anymore.” By the way, if I do the numbers, now I have to kind of like I did with that company years ago, “Hey, I’m gonna have to sell $5 million, $10 million dollars to make the money, and that’s not even possible in this territory. I mean, I could be the greatest salesperson in the world and that won’t work. But you’re right. I mean, one of the things I think is critical is, as a sales organization, I wouldn’t do any more than one structure, commission structure change per year unless it’s detrimental to your company unless something tragic has happened. COVID strikes, right? Or some major thing happens in your industry. I would not change your pay structure, but once a year. And once a year is there’s not a problem with going back and having a review and saying, “Here’s what we found. Here’s what we’re doing. Here’s what we can do.” Right?

Chris (guest): 
But again, to your point, let’s be open, let’s have that conversation, let’s have the dialogue with everybody involved. They don’t need to like the prices. By the way, one thing, a buddy of mine in sales, and I were talking about this one time. And I said, “Eric got a question for you. Does it really matter what the price is?” And he thought about it. He goes, “No.” And I said, “Right. If you’re a good salesperson, the price should not matter. Because if you’re not to do your job and you do it well, the price doesn’t matter.”

Chris (guest): 
Now, you can’t charge $50,000 for a $5,000 piece of equipment.  You can’t charge 20 bucks for a $10 widget, right? Setting yourself up for failure, if you’re not properly evaluating, you, the company, and the product or service that you’re offering. But don’t be afraid,  when people say, “Hey, we were charging $6,000 before. Now it’s $8,000. Now it’s $9,000. What changed?” Well, this change and this change and this change, equipment costs have gone up manufacturing costs have gone up this is that.  Oh, by the way, this August pushed forward to you the customer, and I’m really sorry, but this is how it works. Okay, right? If I can build the value, and I can tell you that this widget, manufacturing costs have gone up, labor costs have gone up, all of these things that surround it have gone up, and we’re just going along, we have to go with what the market is doing.

Chris (guest):  
It’s just part of the game. But how do you build that up? If you just say, well, $6,000 last year, now it’s eight and a half. They go well, “I’m gonna go find somebody else who’s gonna sell to me for six.” Right? Don’t get me wrong, there’s probably somebody out there doing that. They’re selling it for six. It’s unfortunate. But yeah, it’s the market has to grow. We’re constantly evolving, right? I mean, labor comes up, labor costs go up, manufacturing costs go up.

Chris (guest):  
We’re seeing a trend now with what’s happened with COVID. Everything else, there became a shift, if you will, in labor. And a lot of the blue-collar workers go “Wait a minute, I don’t want to go back to work and be afraid I’m going to get sick, and especially not for $12 an hour, or $15 an hour.” We’re starting to see a shift and we’re hearing things, at least I am, where I’m hearing things and seeing things where there’s a huge shift in the revenue being paid to these laborers, right, for their work. They’re seeing a $5 or a $10 an hour increase. What does that do to your product? What does that do to your service? Right? What does that do to it all comes out in the wash, right? Somebody’s got to pay for it. Eventually, it’s gonna get pushed out to you and I the end-user, right, the consumer. Eventually, a Big Macs gonna cost you $25.

Kathy (host): 
Yep, pricing is another topic, another rabbit hole that we can go down to. How do you price it well? If I’m actually on my side, I’m very fascinated with pricing because it’s not just in the cost of service or the cost of the product that you are offering. It’s also in the psychology behind it, the brand positioning, the marketing behind it. Pricing is a whole other topic.

Chris (guest): 
Yeah.

Kathy (host): 
And looking at pricing, not just from a point of how much does it cost me to produce this widget or produce the service? But what is the price that I have? What type of messages is sending to the market?

Chris (guest): 
Yeah, I used to work for a very specialized company, I won’t name them. I used to work for this company, it was a toy manufacturer, and they had a product that nobody else could have because they had a patent on it. Right? So that makes them they’re kind of the man in the industry, right? They’ve got this product that nobody else can manufacture. They got this patent for so many years. And people used to some people used to complain about the price of the product, right? saying, “Oh, it’s just too much.” They used to encourage people to charge a certain margin, right? and say, “Hey, you know, this is what you ought to do, and this is how you ought to do it.”

Chris (guest): 
They help people understand the value of what they brought to the table. It wasn’t just you need to charge this price. It was, here’s why. It becomes a value proposition. What made him special? Well, yet nobody else in the marketplace could get it. But not only that, they were creating a product with such high quality that nobody else could even come close to that and now they have competitors. Okay?  I can tell you right now, the competitors are nowhere near the quality of the original toy, right? They’re just not. And so they’re still king in the industry. They’re still charging the margins and everything else, right, that they giving demand, the demand for what they do and the margins of every- 

Chris (guest):
It all comes back to, do you have a right product, do the right service, into your point? Are you branding and properly in charging a premium for it? In too many times I see people devalue themselves. Like I said, I was talking with somebody earlier, they devalue themselves, right? They said, “Oh, we got a certain product. And we’re going to charge this much for it.” And I said, “Why? Why are you charging that for? If this is what you need to survive? And this is your cut, even you know, breakeven price, why are you charging the breakeven price? Why shouldn’t you charge more?” If you want to be around, if you want your business to be around, you’ve got to charge? And it’s, by the way, I’ll say this, it’s perfectly acceptable to get double-digit net margins, right. Kathy, tell me if I’m wrong, I think it’s acceptable.

Kathy (host): 
No, you’re absolutely right.

Chris (guest):
It’s acceptable to expect 8% to 10% or 8% to 12% margins, at least, right? Because what’s going to keep you in business? What’s going to keep people coming back to you year after year? Is that your price? Or is it your service? Or is it what you offer? Right? Hopefully, it’s you. That’s why they’re coming back. But there’s nothing wrong with asking for and demanding 8% to 10%, or 8% to 12% net margins. When it’s all said and done, you’re putting eight to 12% away in the bank, you’re going to need it. You’re going to need a new building, you’re going to need a new computer, you’re going to need a new vehicle, you’re going to need a new person to help run sales. Right? … You need a business coach, right? All of that comes into play, there’s nothing wrong with doing that. You’re not ripping customers off. you need to understand that you’re not ripping customers off. You’re helping them and you really are. But if you believe that you’re hurting the customers, you’re not going to sell it. You won’t be providing a good service for them.

Kathy (host):  
Yeah, it also comes down to providing premium service or premium product that’s filling a need of a problem that the customer has, and you’re being well compensated for it. It’s a win-win on both sides.

Chris (guest): 
Right.

Kathy (host):  
Because the person is getting exactly what they need at the service that they expect and you are being compensated as well. You are being able to take care of your business your employees and grow the business further because of that revenue that it’s coming in because of the high-value pricing.

Chris (guest): 
Yeah, there’s so many more people we need to bring in on this business discussion, right. But yeah, you’re right. There’s just so many things that go into how do you know, I love the name “Help! My Business is Growing”, right? Because we want that. We want to know how to grow our business. And then when we get there, we’re like, “Oh, gosh, what happened?” Right? “Well, now what do I do?” Well, if you got some close people, you got some mentors. You’ve got some, you’ve got a mastermind group that you’re working with. And if you’ve got those things in place, hopefully, you’re capable of utilizing that resource and growing your business to where you won’t be screaming “Help! My business is growing”, right?

Kathy (host): 
Yeah, exactly. I know we went a little bit off the rabbit hole with a commission.

Chris (guest): 
Is that what you’re talking about?

Kathy (host): 
You mentioned a couple of times about 100% based commission plans versus paying a salary and a commission? And I really want to unpack that, because I don’t see that often. I will say that. And when is it the right time in your business? Or when do you think it’s the right situation to adopt that type of commission plan?

Chris (guest): 
Well, first and foremost, I think it takes the right person. I think that you’re I don’t know of a lot of salespeople that enjoy 100% commission. I was crazy enough, a few years ago, to not only go on 100% commission, but then I went a step further when I was promoted into management. And I said, “They wouldn’t pay me a salary plus a bonus or commissions.” I said, “No.” And they said, “What?” I said, “I want you to pay me 100% commission”. And their jaws hit the floor. And just like, you’re going wait “What?”

Kathy (host): 
Yeah. That was when I first time saw it.

Chris (guest): 
Yeah, when we talked about that the first time you were like, “Ah. Huh?” And I did that because I believe that, that as a leader, as I go, so my team goes, right. Or as my team goes, so I go. In so, doing 100% commission, it’s not for everybody, it’s not for every company. If you have a shorter sales cycle, absolutely 100% commission is something that should be feasible and should be a conversation. If it is a long selling cycle, you may not be able to survive on the 100% commission.

Chris (guest): 
But again, depending on the price tag, and all those other things. But there are several different ways to do it. But again, it’s you’ve got to figure out what works best for you and your business. And oh, by the way, just because the guy down the street that’s selling concrete is paying his guys a salary and doesn’t pay him a commission … he pays them a yearly bonus or quarterly bonus doesn’t mean that you can’t pay your guys commission. Because guess what, those that are really hungry in sales, those as they call them, sharks, or as you know, the true hunters, the ones that really go out there and are good at sales, they want to be on a percent commission. They want to eat what they kill, and that’s the only way to do it.

Chris (guest): 
Now, there may be a draw against commission and I still consider a draw against commission a 100% commission, because you’re having to pay back all of that. So if they give you $1,000 a week, you have to pay back $1,000 before you get paid, right. You have to make more than $1,000 in commissions. You have to make $1,500 and then you get $1,500. Right. A thousand of it was “semi guaranteed”. But if you’re going to do that from a business standpoint, you need to put a cap on it. Because you can’t have somebody running a mock and not selling well. All of a sudden, they’re into you for $10,000. There’s no way out of that rabbit hole, right. There’s no way for them to sell themselves out of that hole. Typically, I would say put a month’s cap on it. If it’s $1,000 a week, you give them there’s a cap of $4,000. If they reach $4,000, that they still owe the company because they’re not making enough commissions, then they don’t get their draw the next week, the next month, you know, whatever the next pay period, right.

Chris (guest): 
If you’re a hunter-gatherer, there’s nothing wrong with that. You got to work the fields, you got to nurture the leads, and you got to do the things that you need to do with the customer. Right? To get them on your side, eventually, they’ll buy from you. There’s nothing wrong with that either, right? But there’s sometimes it’s very clearly a hunter versus a farmer. As you get into those, there’s a different pay structure for each one of those because and even for your business, but your business has to be set up for that and you have to understand again, a lot of it goes into the selling cycle. If you have a short selling cycle you’re probably more apt to go into 100% commission because they get paid as they sell it.

Chris (guest): 
But again, if it’s a long selling cycle, if it takes six months to a year, you can’t do that. You’re not going to pay these guys so much on the front end. You have to pay him a salary plus, and that’s okay. But when you do that those deals typically are, the longer cycle deals are typically more expensive. Because of that, there’s more gain on the back end, right. There’s more reward when the bonus gets paid. So 1% bonus or 1% commission on the overall doesn’t, it makes more sense.

Kathy (host): 
And how short should the short-selling cycle be? Is that up to three months less than that?

Chris (guest): 
I would say no more than a month. But you know, I mean, there’s gonna be people that that argue with me on that, and that’s I’m good either way. But I will tell you if it takes more than a month to sell it or two months, right. Now you’re getting into “Can you go a month without a paycheck.” And then is the deal so sweet that when you do sell, you sell these phenomenal deals, you sell two or three really good deals, and they finally come in and now you’re making a 20 or $50,000 paycheck. Yeah, sometimes you can go with a little bit longer to three months sales cycle. Depending on the average sale, the average ticket size, right, all of that stuff, the commission that would come off of that, what does that look like? Yeah, I mean, you could do that.

Kathy (host): 
How about people who are managing day salespeople that should they be placed on 100%? commission as well, and those types of situations?

Chris (guest): 
Most of the leaders out there are going to say, absolutely not. I would tell you, if your team is on 100%, commission, I would absolutely consider it. I think you should consider it as a leader. And again, for me, I decided to do that. Because, again, as my people go, so I go, and I wanted to show my team that I was with them, 100%, literally 100%. And so if they had a bad month, I had a bad month. They had a good month, I had a good month. It came down to how my coaching them, how am I working with them? Am I helping them to get better at their craft? Most leaders are going to be paid some sort of a base salary. And quite frankly, it’s going to be a high base salary, because of what they’re expected to do. I would contend that if you as a business owner, as even a sales leader, if you back off that number, and say, “Okay, you know what, I’ll take a smaller salary. But I want a higher percentage, on the back end, I want higher bonuses, or I want. If we hit these certain margins, if we hit these certain dollar amounts, if we do these things, then I’d like to do this and do this and do this, right? I wanted to increase based on the performance.” Right? Because it’s all about performance at that point. And that’s where the 100% Commission comes in. Somebody wants to be paid based on performance.

Kathy (host): 
You know, there’s a scenario so you talk about the team effort with the managers and the salespeople. But there’s also scenario, what if you have multiple salespeople working on one deal? How do you structure that especially when it’s 100%? commission?

Chris (guest): 
Yeah, and that happens a lot. Depending on the industry, that can happen a lot. I’ve been in the industries heating and air conditioning or even food processing equipment, right? You have a tendency to where there’s two different people that have been working on the deal. Nothing wrong with splitting commission on that, and splitting it. 50/50. Right? But yeah, that’s that is acceptable practice within the business. And if you’re in sales, you understand that, right? Because if I help you make a sale, Kathy, I may want to be compensated for my time and effort, right, for the things I do for you. But at the same time, I also know that at some point, you’re probably gonna do the same thing for me. Because if I’m helping you, you’re helping me, right? We’re working as a team. Yeah, a lot of times, what you’re gonna find is that there is a, there’s reciprocity, there’s a 50/50 split, or, you know, you help me with one, I help you with one, but normally, you’re just gonna see that 50/50 split.

Kathy (host): 
Is it essentially between because you’re in sales, I mean, I, this is a bit of a foreign topic for me when people are splitting a commission this way, but between the salespeople is there, essentially a handshake that happens? Or do you go-

Chris (guest): 
No, you have to document it.

Kathy (host): 
You have to document it. Right. Yeah, yeah, that’s where I was going. Yeah.

Chris (guest):  
Yeah, please do yourself a favor and save everybody that headache and document it. Now, sometimes, it may not be documented. You may get somebody that says, “Hey, listen, you helped me out with that. I really appreciate it. Kathy, I’m gonna give you half the commission.” You don’t have to do that yet. And you know what I do because you really worked hard on that you helped me with this. And if it wasn’t for you, I wouldn’t have gotten it. And so I go, and I talked to my boss and I say, “Hey, Kathy helped me out a tremendous amount with this deal. Can we go ahead and split the commissions 50/50?” Well, then you go and talk to the accountant or you know, the person on staff that’s handling the commissions, right, and how they get paid. And they want to shoot you because now you’ve just created more work for them. But it may not be that big of a deal. But yeah, do yourself a favor document, document, document. Please have that as part of your kind of your onboarding-

Kathy (host): 
Sheet structure.

Chris (guest): 
Yeah, your onboarding sheet when you hire commission, or when you hire salespeople. By the way, here’s the way we pay commissions. One of the last lines if you do this with so and so you will split the commission, right? But it’s a conversation that needs to be approved by the manager of sales or whatever, you know, whatever the wording needs to be, but it should be approved, before anything is done because I don’t need you going to the manager and saying, “Oh, I helped Chris on that deal.” And I go “You answered the phone and you didn’t do anything while I helped with the deal.” … I’m not going to give you 50% commission for answering the phone.

Kathy (host): 
There has to be a documented in a clear process of what it really means to help with the deal?

Chris (guest): 
Absolutely. Yeah, it’s like with anything. I mean, if you want to understand how you’re going to get paid, you probably want it in writing. So you can say, either I did, or I didn’t do the job. Yes, I’m getting paid according to what I did, or I’m not getting paid according to what I didn’t do.

Kathy (host): 
Well, Chris, this has been absolutely delightful. It was a great conversation. Before we go, I’d like to ask you, what do you think should be the next tangible step for the listeners that they can take back to their business? When it comes to the sales, commissions? What should they do what they can they do this week, to get them to that next level?

Chris (guest): 
A couple of things I’d recommend one is kind of we talked about it before, if you don’t have a coach, do yourself a favor and get one. I’m not saying “Hey, come call me”. You can do that but call a coach. Call somebody that will help you and will work in your business and work on your business with you, right. Help you to understand some of that stuff.

Chris (guest): 
Once you get all that set up and you decide, hey, I’ve got salespeople in place, or immediate salespeople in place? Do you have a structure? Do you have it written down? Do you have it all clearly lined out in terms of what you’re going to do? Or how you’re going to do it? And then once you do all that stuff, get the right people in place. If you have questions on that, there’s plenty of different profile tests that you can take and give to people that will tell you, “Yes, they are good for sales, or they are not good for sales, or they’re gonna be helpful or not gonna be, you know, helpful in sales.”

Chris (guest): 
There’s also companies out there that can help you with that hiring the sales hiring process, I’m not talking about a regular recruiter. Okay? There are companies out there. And like I said, if you get in touch with me, we can have the conversation. But there’s a company out there that that can help you, and it’s not cheap. But they will help you hire the right sales professional, and they guarantee it. You want to talk about an almost for sure plan, right? Get somebody who’s going to guarantee the work that they do. If they can guarantee they can hire somebody that will sell for you. You want to hire them.

Kathy (host):  
Awesome, Chris. Thank you so much.

Chris (guest): 
Absolutely.

Kathy (host): 
Where can listeners get in touch with you?

Chris (guest): 
Oh, the easiest thing to do is, you text the words “coachchris”, all one word to 21-000, and so just like you would put in a phone number at the top in, you know, you put 21-000 in there. And then you type in in the where you put the text you put in Coach Chris, and it’s all one word, Chris C-H-R-I-S. But when you do that, you get my digital business card. You can download my info to your phone, you’ll see all of my social media- my LinkedIn, my Twitter, my Facebook, Instagram, all the ways you can connect. You’ll have my cell phone, you can reach out to me on my website, all of that stuff is available. When you see that you’re going to notice something, don’t forget to ask about the red chair. Kathy knows about the red chair. She may be able to describe it. But that’s the best way to do it is easiest is text “coachchris” to 21-000.

Kathy (host): 
I love the red chair. You definitely talk about the red chair. Yes.

Chris (guest):  
Ask about the red chair.

Kathy (host):  
Ooh, yes. Yep.

Kathy (host): 
Thanks so much, Chris. Thank you for being here.

Chris (guest): 
Absolutely. Thank you, Kathy.

Kathy (host):  
I really hope you’ve enjoyed this episode. It’s definitely been an eye-opening for me in terms of learning how the salespeople operate and how they think about their commission structure. And no better person to talk about this than Chris. He has 30 years of experience in sales and he’s such an expert on this. I’m really grateful that he said yes to my invitation to the Help! My Business is Growing Podcast. And hey, before I go, I also have a favor to ask. So if you’re listening to this on Apple podcast, I would really appreciate if you could go to the show. Tap the number of stars that you think the show deserves, and it would really help because that means that other people can find it, too. Thanks so much for doing it. Until next time.