Keep Sales Compensations Tied to the Top-Line

man with graphI’d love to write that every candidate I placed in the last 14 years is still at the job I put them in (well, at least stayed at their job for a good long stint anyway). But, sadly, that is not always the case.

b>Companies change strategies, hire new managers, go out of business, or myriad other reasons come to mind why some candidates don’t stay. Some companies hire one type of candidate thinking that is exactly what they want, only to find months or years later that they really need another skill set. So, let’s face it — stuff happens, whether you have a recruited candidate whom you paid for, or one you found on your own.

Merry Christmas from Mr. Perfect

Recently, I was particularly pained when a sales candidate I had placed a few years ago called me in December to wish me a Merry Christmas and tell me he had resigned! I was shocked and speechless — and here’s why.

This guy was the perfect salesperson for his employer — a custom, high-end, boutique consulting services house. He had worked for one of their competitors, is a consistent over-quota performer closing average deals in excess of $500K, has a professional demeanor that can only be classified as a “10” (yes, he is the guy in the Armani suit with not an inch of body fat). And, he’s smart (Harvard undergraduate, Wharton graduate). Get the picture? Hope so!

The Post-Mortem

So, here’s what went wrong. Our candidate is out there selling large projects. The sales process (3–6 months) includes having project managers involved and is “costed-out” on a number of factors such as time to complete, manpower needed, etc. Our candidate finds the deals, manages the sales process and closes the deals. He then hands the project over to the internal project manager. He makes a commission based on the gross amount of the deal (which, remember, is based on the projections of those very same project managers). Are you with me so far?

After a year of very good success with this model, the company decides to change the model and the sales compensation. (That, in and of itself, doesn’t have to be the kiss of death. But what they did was.) They changed the compensation from commission on the gross revenue to commission that was based on the gross margin of the project.

Gross Revenue vs. Gross Margin — Ah, the Eternal Struggle

Now, I know all you financial-types out there are thinking that this can be a very good model. And, in some instances, I might even agree that you might be right. But this is not one of them. And here’s why.

Our sales guy has NO CONTROL of the project once it is sold. If the project goes over budget for some unforeseen reason, he has no control. The project managers do not report to him nor do any of the implementation team. Once the sale is made, he is out of the picture and powerless as to the outcome, and certainly the profitability of the project. Yet under the new compensation plan, his very income is based on just that.

Keep Salespeople Top-Line Focused

I think sales compensations should be top-line focused. Sure, there are exceptions to every rule and I’m not saying that you should suspend salespeople from good financial management decisions, or that the sky is the limit on sales expense accounts, for example. But I am saying that in the 25 years I have been selling, managing salespeople and recruiting salespeople, most, if not all, are top-line driven — and that’s a good thing. They reach for their numbers — they try to hit their quotas. Give them the figures and let ’em go. They are independent in nature, for the most part, and don’t mind the responsibility of having a quota. It’s in their blood.

Keep Your Eye on the Bottom Line

If you allow your salespeople to keep a keen eye on the top-line, my suspicion is that your bottom line will take care of itself. If you have cost overruns in other departments, then that’s your challenge as a business owner or manager to fix those things. But, don’t make your salespeople pay for it — or you’ll pay for it by losing your best salespeople.

I have no doubt that the departure of our sales star has put a considerable hole in the company’s revenue targets for 2007. And, I believe this company made a big mistake.

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