When it comes to sales organizations, most independent ISPs are woefully underpowered. What's the problem here?and what can you do to remedy it?
by Jason Zigmont HowToSell.net [July 30, 1999]
The basic problem is a general lack of skilled salespeople within the relatively young Internet industry. It's tough for an ISP to take a car?or carpet?salesman (or woman,of course) and instantly turn him into an Internet sales guru.
If you do find someone who's skilled in Internet sales, he or she is pretty much guaranteed to be working at an ISP already. If you want him or her, you'll have to pay dearly. Turn the situation around and you've got another problem: If you're looking to poach other people's talented salespeople, chances are that if you have good salespeople, your competition wants them, too.
Either way, you end up paying big salaries to the key salespeople within your organization. These essential people will probably bring in most of your business. (Remember the 80/20 rule?) This most likely gives you one or two heavy hitters, which probably will not be enough to carry a company, but will keep you right-side up.
But to grow your sales force without going bankrupt, you'll need to add less experienced people and hope you can train them to the level of sales success that your key people have achieved?without losing them along the way.
Two choices
You can hire salespeople who may not know how to plug a computer into the wall and train them on the technical side, or hire technical people who couldn't sell water in the desert and bring them up to speed on sales skills. But which way to go?
For most ISPs, a simple answer is to bring your technical staff into the loop as sales support. This then shifts the balance in the direction of hiring people with proven sales records (preferably not in carpet or used cars sales) and training them technically. And you really do need to train them. Training is all too often overlooked, but it can make the difference between success and . . . well, that other thing.
Instant producers?
When general 'management' people hire saleseople, they often expect them to start producing immediately?forget about training and forget about the sales cycle. If you do this, you're only setting yourself up for disaster. Try to hang onto the idea that in this business, it ain't gonna work that way. The simple truth is that your sales recruits will have as much technical knowledge as you are willing to give them.
Even if you do have the ability to train sales recruits in both sales and technical skills, not every newcomer will become a producer. Not everyone is cut out for sales. It's a rewarding, job, but it's demanding too. If they prove unwilling to train, then you hired the wrong person. If they just aren't 'getting it,' all the training in the world won't make them succeed. What to do? Fire early and often. If someone isn't working out, teaching him or her Sales 101?or the technical underpinnings of the ISP trade?will be an investment with no return.
Another problem
In many ISPs, the sales staff are managed by tech staff. Not only does this not foster the teaching of sales skills, it may result in frustrations caused by technical managers' not understanding the sales cycle. But remember, sales is a numbers game. You should be able to forecast your sales and know within reason what your sales will be next month. If a salesperson has nothing on the forecast for an extended period, then there is something wrong.
Finally, many ISPs are willing to pay or otherwise 'incentivize' technical staff to come?or remain?on board, but not sales staff. This is probably because management is typically more in touch with the technical side and the need for good customer service, But the fact remains, you get what you pay for. If you give second-class incentives to salespeople, you'll probably always have a second-class sales organization.
When it comes to sales organizations, most independent ISPs are woefully underpowered. What's the problem here?and what can you do to remedy it?
by Jason Zigmont HowToSell.net [July 30, 1999]
The basic problem is a general lack of skilled salespeople within the relatively young Internet industry. It's tough for an ISP to take a car?or carpet?salesman (or woman,of course) and instantly turn him into an Internet sales guru.
If you do find someone who's skilled in Internet sales, he or she is pretty much guaranteed to be working at an ISP already. If you want him or her, you'll have to pay dearly. Turn the situation around and you've got another problem: If you're looking to poach other people's talented salespeople, chances are that if you have good salespeople, your competition wants them, too.
Either way, you end up paying big salaries to the key salespeople within your organization. These essential people will probably bring in most of your business. (Remember the 80/20 rule?) This most likely gives you one or two heavy hitters, which probably will not be enough to carry a company, but will keep you right-side up.
But to grow your sales force without going bankrupt, you'll need to add less experienced people and hope you can train them to the level of sales success that your key people have achieved?without losing them along the way.
Two choices
You can hire salespeople who may not know how to plug a computer into the wall and train them on the technical side, or hire technical people who couldn't sell water in the desert and bring them up to speed on sales skills. But which way to go?
For most ISPs, a simple answer is to bring your technical staff into the loop as sales support. This then shifts the balance in the direction of hiring people with proven sales records (preferably not in carpet or used cars sales) and training them technically. And you really do need to train them. Training is all too often overlooked, but it can make the difference between success and . . . well, that other thing.
Instant producers?
When general 'management' people hire saleseople, they often expect them to start producing immediately?forget about training and forget about the sales cycle. If you do this, you're only setting yourself up for disaster. Try to hang onto the idea that in this business, it ain't gonna work that way. The simple truth is that your sales recruits will have as much technical knowledge as you are willing to give them.
Even if you do have the ability to train sales recruits in both sales and technical skills, not every newcomer will become a producer. Not everyone is cut out for sales. It's a rewarding, job, but it's demanding too. If they prove unwilling to train, then you hired the wrong person. If they just aren't 'getting it,' all the training in the world won't make them succeed. What to do? Fire early and often. If someone isn't working out, teaching him or her Sales 101?or the technical underpinnings of the ISP trade?will be an investment with no return.
Another problem
In many ISPs, the sales staff are managed by tech staff. Not only does this not foster the teaching of sales skills, it may result in frustrations caused by technical managers' not understanding the sales cycle. But remember, sales is a numbers game. You should be able to forecast your sales and know within reason what your sales will be next month. If a salesperson has nothing on the forecast for an extended period, then there is something wrong.
Finally, many ISPs are willing to pay or otherwise 'incentivize' technical staff to come?or remain?on board, but not sales staff. This is probably because management is typically more in touch with the technical side and the need for good customer service, But the fact remains, you get what you pay for. If you give second-class incentives to salespeople, you'll probably always have a second-class sales organization.
Management 101: Compensating Salespeople
Part 1: Salaries & Quotas
We have explored the process of attracting a sales force, but once the beast's in your barn, how do you feed it to maximize its productivity?
by Jason Zigmont HowToSell.net [August 20, 1999]
A question I am asked repeatedly is "What should I pay my salespeople?" The simplicity of the question suggests a simple answer. For better or worse, however, the answers (note plural) are quite complex. Nevertheless, in this column--and next week's--I will attempt to provide some useful guidelines by exploring some possible solutions.
Disclaimer: That there are dozens of books on salesforce compensation--and thousands of different strategies. You can even outsource your commission structuring to outside experts. So, again, these columns should not be viewed as a comprehensive treatment; rather it sketches out some practical solutions, based on what some ISPs are offering--without delving into the theories behind the solutions.
The first debate in designing salespeople's pay structures is commission-only vs. base+commission or some other variant. Personally--and there are those who vehemently disagree--I would never again hire a commission-only salesperson. I've done it, and I've learned from my mistakes.
Commission-only: Not recommended
While hiring salespeople on commission only may sound attractive, there are many pitfalls. Under normal circumstances, experienced salespeople will never take a commission-only job. Salespeople paid on a commission-only basis not only have problems doing their own budgets, they also have a very rough time getting credit, loans, or any type of credit cards because banks want to see a stable income.
In addition to attracting inexperienced people, commission-only plans can make salespeople desperate, and desperate people sometimes do desperate things. This is not a negative reflection on salespeople (I am in sales, after all), but your salespeople have lives and expenses. A slow month--which may well be completely out of their control--may interfere with their putting food on the table: financial desperation. This will increase the motivation to stretch the truth or flat-out lie to get a sale. Desperate salespeople are not the ones you want representing your company.
If you have decided you want commission-only salespeople, then skip down a few paragraphs to the section on quotas. If I've persuaded you, the next question is what base salary should you pay your salespeople?
Base salary basics
Employers have different philosophies on base salaries, but personally, I believe that a salesperson's base should be just enough to barely cover their normal expenses. Salespeople are money-driven; your goal is to avert anxiety by having the base cover food and shelter, and let the salesperson's drive for money and toys drive them to make sales.
Base salaries vary from area to area, of course. The range I've seen runs from $20k to $70k, with the upper end being in areas like New York City. To determine a reasonable base for your area, start by calculating your cost of living. (There are many cost of living tools available on the web. For example, Career Builder has a good set of tools.)
Tip: You can also use a higher base to entice a salesperson to come to your company and to reward your 'senior' salespeople.
Quota quotients
The next step is to determine what quota your salesperson will have to achieve in new sales each month. Quotas are generally defined in terms of a total of new monthly recurring revenue, but I have seen combined quotas of recurring revenue and non-recurring revenue. Ideally, you would like to have your salespeople bring in new sales equal to or greater than their monthly base salary. That is, if they have a base salary of $60K, then you would ideally have a monthly quota of at least $5K. This approach works equally well for junior and senior salespeople, as it's calculated from their base salary.
While dividing base salary has the virtue of being a simple method, it glosses over two significant factors that you need to consider. The first of these is your product set. Quotas for salespeople selling higher priced products (high-speed access, co-location, etc.) can be higher. The opposite is true also. The second is what level of sales are actually possible both given your geographic and market area, and your system limits. That is, if you can't handle $5k in new sales each month, then it makes no sense to set quota that high.
Stat: Average ISPs have a quota of between $3K and $4K in new sales every month.
Quotas function as both a goal and a calibration tool. If a salesperson constantly misses his/her quota, and the rest of the sales force is beating it, then it is probably time for that salesperson to shape up or ship out. If no one is beating the quota, then maybe it is a little high. You need to experiment with quotas to see what is right for you.
Tip: Beyond quotas - Quotas are necessary and good, but you need more: You should also have an incentive for salespeople to beat their quotas. As noted, salespeople are competitive creatures, and contests motivate them. Some companies have a 'commission accelerator' or bonuses for exceeding quotas. Many companies have a 'President's Club', which is usually a company-sponsored trip for salespeople who beat their yearly quota. (Monthly quota x 12)
Management 101: Compensating Salespeople
Part 2: Commissions
We discussed the 'simple' parts of salesforce compensation: base salaries and quotas. Now, lets discuss the delicate art of setting commission rates.
by Jason Zigmont HowToSell.net [August 27, 1999]
After you have set quotas for your salespeople, the next step is to determine their commission percentage. The actual percentages should be determined by your profit margin. Also, by adjusting rates for individual products, commissions can become tools for motivating salespeople to sell certain products over others.
Playing the percentages
Two commission structures that are especially popular with ISPs are:
percentage of monthly recurring revenue (% of MRR) every month, and
one-time % of MRR.
Both have pros and cons, and we'll examine them in detail below. In practice, however, your accounting and payroll system may prove a critical factor in determining which you'll use: Many ISPs simply can't use a % of MRR every month system because their accounting software can't produce the necessary reports.
Both systems may also include a one-time percentage of any setup fees, but usually this is around 10 to 20 percent; it shouldn't be where a salesperson makes their real money. Commissions are usually paid one month behind to assure the sale is real and that the customer was added and billed.
Some companies do not pay commission until they receive payment from the customer, but in effect, this puts the salesperson in charge of accounts receivable. Personally, I'd rather have them out getting new sales then chasing money on a monthly basis.
Every-month system
In a % of MRR every month system, the salesperson is paid a percentage (usually 10 to 25 percent) of cumulative sales, every month. That is, if they had $1,000 in sales month 1, $2,000 in sales month 2, and $3,000 in month 3, then assuming a 10 percent commission rate, in month 1 they would receive 0 in commission (commissions are a month behind.), $100 in month 2 (10% of month 1), $300 in month 3 (10% of month 1 plus month 2) and so on, as the following chart illustrates.
Month 1 2 3 4
Sales $1,000 $2,000 $3,000 $4,000
Commission* $0 $100 $300 $600
*assumes 10% commission
This commission structure is nice because then the salesperson gains a personal stake in the customer, and is more likely to help the customer after a sale. While it is possible to do chargebacks with the next structure, it is much harder.
This structure tends to produce a steady, generous revenue stream for salespeople?sometimes causing what is often called the 'fat and happy syndrome'. The key is in the salesperson's quota. If they don't make their quotas, they may be fired and lose that revenue stream. The threat of loosing this very lucrative revenue stream is also an effective employee retention tool.
One-time system
In the flat-, or one-time percentage of sales system, the salesperson gets a cut, which can range from 50 to 200 percent, of the first month's sales. That is, if they had $1,000 in sales month 1, $2,000 in sales month 2, and $3,000 in month 3, then assuming a 100% pay rate, in month 1 they would receive $0 in commission (commissions are a month behind.), $1,000 in month 2 (100% of month 1), $2,000 in month 3 (100% of month 2) and so on. See the chart below:
Month 1 2 3 4
Sales $1,000 $2,000 $3,000 $4,000
Commission* $0 $1,000 $2,000 $3,000
*assumes 100% commission
This plan wins points for simplicity. The math is easy, and the numbers are very easy on accounting and payroll. The hard part is keeping the salesperson interested in the customer post-sale. One way to counter this syndrome is a chargeback program where the salesperson gets charged back commission but this is often more trouble then it is worth.
Chargebacks can cause an adversarial relationship, and are hard to calculate if you do not have a yearly contract. In most cases, the company ends up eating the charge backs, as it is not worth the hassle.
Whatever systems you decide to go with, you'll need to tinker in order to find exactly the right fit for your company. Also, there is one provision in every commission plan that you should include. "Employer has final say over all commissions and may change this plan at any time." Use this clause to your advantage, and change it if it is not working for you.
Management 101: Compensating Salespeople
Part 2: Commissions
We discussed the 'simple' parts of salesforce compensation: base salaries and quotas. Now, lets discuss the delicate art of setting commission rates.
by Jason Zigmont HowToSell.net [August 27, 1999]
After you have set quotas for your salespeople, the next step is to determine their commission percentage. The actual percentages should be determined by your profit margin. Also, by adjusting rates for individual products, commissions can become tools for motivating salespeople to sell certain products over others.
Playing the percentages
Two commission structures that are especially popular with ISPs are:
percentage of monthly recurring revenue (% of MRR) every month, and
one-time % of MRR.
Both have pros and cons, and we'll examine them in detail below. In practice, however, your accounting and payroll system may prove a critical factor in determining which you'll use: Many ISPs simply can't use a % of MRR every month system because their accounting software can't produce the necessary reports.
Both systems may also include a one-time percentage of any setup fees, but usually this is around 10 to 20 percent; it shouldn't be where a salesperson makes their real money. Commissions are usually paid one month behind to assure the sale is real and that the customer was added and billed.
Some companies do not pay commission until they receive payment from the customer, but in effect, this puts the salesperson in charge of accounts receivable. Personally, I'd rather have them out getting new sales then chasing money on a monthly basis.
Every-month system
In a % of MRR every month system, the salesperson is paid a percentage (usually 10 to 25 percent) of cumulative sales, every month. That is, if they had $1,000 in sales month 1, $2,000 in sales month 2, and $3,000 in month 3, then assuming a 10 percent commission rate, in month 1 they would receive 0 in commission (commissions are a month behind.), $100 in month 2 (10% of month 1), $300 in month 3 (10% of month 1 plus month 2) and so on, as the following chart illustrates.
Month 1 2 3 4
Sales $1,000 $2,000 $3,000 $4,000
Commission* $0 $100 $300 $600
*assumes 10% commission
This commission structure is nice because then the salesperson gains a personal stake in the customer, and is more likely to help the customer after a sale. While it is possible to do chargebacks with the next structure, it is much harder.
This structure tends to produce a steady, generous revenue stream for salespeople?sometimes causing what is often called the 'fat and happy syndrome'. The key is in the salesperson's quota. If they don't make their quotas, they may be fired and lose that revenue stream. The threat of loosing this very lucrative revenue stream is also an effective employee retention tool.
One-time system
In the flat-, or one-time percentage of sales system, the salesperson gets a cut, which can range from 50 to 200 percent, of the first month's sales. That is, if they had $1,000 in sales month 1, $2,000 in sales month 2, and $3,000 in month 3, then assuming a 100% pay rate, in month 1 they would receive $0 in commission (commissions are a month behind.), $1,000 in month 2 (100% of month 1), $2,000 in month 3 (100% of month 2) and so on. See the chart below:
Month 1 2 3 4
Sales $1,000 $2,000 $3,000 $4,000
Commission* $0 $1,000 $2,000 $3,000
*assumes 100% commission
This plan wins points for simplicity. The math is easy, and the numbers are very easy on accounting and payroll. The hard part is keeping the salesperson interested in the customer post-sale. One way to counter this syndrome is a chargeback program where the salesperson gets charged back commission but this is often more trouble then it is worth.
Chargebacks can cause an adversarial relationship, and are hard to calculate if you do not have a yearly contract. In most cases, the company ends up eating the charge backs, as it is not worth the hassle.
Whatever systems you decide to go with, you'll need to tinker in order to find exactly the right fit for your company. Also, there is one provision in every commission plan that you should include. "Employer has final say over all commissions and may change this plan at any time." Use this clause to your advantage, and change it if it is not working for you.
ISP Sales Commissions
Want to tune your sales organization for maximum efficiency? Matching the right payment system?and the right commission structure?to the job can make all the difference.
by Christopher Knight [September 20, 1999]
You're ready to build your first ISP sales team and you want to create an effective commission strategy. Or perhaps you already have an ISP sales team, but you're not sure if you're paying them appropriately. Today's article delves into strategies for paying your salespeople that produce optimum results for you, your sales reps, and your ISP.
There are three possible ways to pay ISP salespeople:
Base-pay-only.
Base-pay-plus-commission/bonus.
Straight commission with a recoverable draw.
Each of these approaches has its own set of implications
Salespeople who are paid a base salary only?
Tend to not be as motivated on a daily basis as those who are compensated on a commission or bonus structure in addition to their base pay
Tend to be your marketing and/or sales assistants, typically performing many standard sales functions-except for that all-important cornerstone of salesmanship: asking for the order
Sales reps of less than topnotch quality may stick with you forever if you compensate them with adequate base pay. Top-gun salespeople paid this way, on the other hand, will quickly decamp to the first one of your competitors who offers them a chance to increase their income via commission or performance bonuses.
This is not to say that you could not have a profitable or successful relationship with a sales rep compensated via base pay only. If you choose this unconventional route, however, you must clearly define minimum expectations; if they don't meet them, you may have to consider letting them go.
Salespeople who get base-pay-plus-commission?
Tend to be motivated on a daily basis
Are able to sell without worrying that they need to close the next sale or go huhgry tonight. This allows them to focus more on the customer's than their own.
This is by far the most popular basis for compensating ISP salespeople: The base pay satisfies their basic security needs. The system rewards them with increased pay as their sales efforts (and results) increase, and it keeps their attention focused on corporate goals instead of the own selfish desire to maximize commissions above all.
Salespeople who earn straight commission with a recoverable draw?
Tend to be highly motivated daily, are highly self-disciplined and are typically "A" type personalities.
Tend to be either highly successful or near quitting, depending on their recent performance.
Tend to focus more on selling what they need to sell than selling what the customer really needs or wants to buy.
Have a hard time caring about the rest of their ISP team, as they typically only care about driving their commission up at all costs.
A recoverable draw is where your ISP advances money to a salesperson, to be paid back or "offset" by future sales commissions. This is a way to level the peaks and valleys in a typical straight-commission sales rep's paycheck.
If you decide to employ straight-commission sales reps, the law requires that you guarantee them minimum wage. It's important to keep this in mind when you're managing their recoverable draw. (For more on your local employment laws, check with your State Dept of Human and Labor Relations.)
Risk-Reward Relationships
From the sales rep's point of view, base-pay-only has the lowest risk, while straight commission has the highest. Base-plus-commission represents a broad middle ground. When deciding how to pay your base-plus-commission sales reps, you must calculate the risk/reward relationship, because balancing a high base with a relatively low commission, and vice versa.
How much should I pay them?
Typical ISP reps selling dialup service usually range from $18,000 to $35,000 per year base pay (depending on your location, their level of experience, and your ISPs ability to pay for different levels of sales talent) plus commission ranging from 1 to 7 percent. For salespeople on direct or straight commission, 10 to 15 percent of net collected revenue is typical, with 1 to 2 percent bonuses based on high performance.
Reps selling higher-end dedicated Internet access accounts or web development services are typically paid $24,000 to $60,000 as a base plus commission, depending on skill, experience, and performance.
Your goal is to pay less than 10 percent of your gross sales as your sales expenses. For example, if your sales team brings in $750,000 in sales, this should cost you no more than $75,000 in commissions/pay. The only time it would make sense to pay more than 10 percent of your gross sales is when you need your ISP to grow faster than normally possible, either because of the lifetime value of each customer or the recurring revenue stream you need to meet your plans.
What do I pay commission on?
The standard procedure is to pay commission on the basis of net collected revenue for the given pay period, never on the gross revenue. This helps to motivate your sales team to see that customers pay their bills. Otherwise you'll be paying your reps on the basis of billing that may remain unpaid or unpayable.
A note for ISP salespeople:
Assuming you'e paid on a base-plus-commission or straight commission basis, your goal is to maximize your commission amount. The size of your income is directly proportional to the volume of sales you close?the value you deliver. If you want to make more money, you must find a way to increase the number of sales you close and the amount of value you deliver.
In my opinion, there is no greater role within an ISP organization than being in sales. After all, nothing happens until a sale is made. Not only that, starting in sales is a great way to make it into upper management, or to end up leading a sales team of your own - while earning commission on the performance of your team.
ISP Sales Team Management 101
A managed sales team is a more productive sales team. Setting high goals and standards is the beginning.
by Christopher Knight [September 27, 1999]
Out of every ten salespeople you hire, only one or two will be great; the others will be marginal at best. This leads to the typical situation where 80 percent of your sales come from 20 percent of your people. To maximize sales?to get your sales team performing to the ultimate best of their ability?you need to get involved.
Some initial guidelines for ISP Sales Managers
Don't accept anything less than 100 percent commitment and effort from each of your sales reps.
It's not who you hire, but who you don't fire fast enough that can threaten your total sales. Always be recruiting.
Encourage your people to emulate a top dog in your sales department?or yourself?when it comes to learning the ropes.
You determine the pace of the pack. Set your goals high enough to keep everyone running?including yourself.
To do their job properly, your team needs to have quick access to information and sales materials. This includes flyers, brochures, spec sheets, customer testimonials, biz cards, letterhead/envelopes, etc.
Prepare yourself and your reps for maximum output Your sales reps have one goal: to sell. Your goal is to provide the leadership that helps them maximize their potential, and at the same time fully realize the potential of the services your ISP can provide.
Create a pre-selling plan of attack, so that each of your reps is familiar with common customer characteristics and the typical needs and wants of each customer type. For example, divide your business into product-line units, such as dialup Internet access, dedicated access, Website hosting, Website design, Perl or CGI programming, etc. For each product or service line, create information sheets for your reps that outline how to maximize sales from each group.
Time-management skills often make the difference between excellent and mediocre performance. You must not only set the example for what great time management looks like, you should be generous with tips and guidelines on time management for your staff. Perhaps more important, you need to set expectations for how they will discipline themselves to achieve maximum productivity.
There are selling hours and there are preparation hours. Help your team to know the difference and what you do during each of these periods. Typically, the preparation time is before 8 AM and after 5 or 6 PM. The time between 8 AM and 5 or 6 PM should be pure selling time.
Tip: Have each of your sales team members send you a "60 second report" email at the end of their day. It should briefly cover what their sales and collections were, what went great, what went wrong, how they rated their day, and any problems they had that they want your help with. This is an extremely powerful way to get your people to be accountable, while helping you manage the flow.
Some scary sales statistics
40 to 75 percent of sales leads passed to a rep never gets followed up.
70 percent of your sales staff lack strong closing skills or will fail to ask for the order
These numbers are derived from my personal experience of hiring over 300 salespeople over the last ten years. A successful sales manager is not only a teacher and mentor, but needs excellent followup skills in order not leave money on the table.
Another approach to this problem, however, is take the lead and give your reps whatever basic skill training is required to get them to close sales. Failure to close generally comes either from fear or from laziness. In cases where it's the former, you can build up their confidence. Where it's the latter, the solution is often to fire them. Nothing personal, but the owners of your ISP want results, not excuses.
Managing your ISP sales team by the numbers
What gets measured gets managed. Motivate your sales reps by posting publicly their sales totals for the past month, last week, and current week, breaking it down by service or product category type. Also provide figures for average ticket size (total sales divided by number of invoices) and average number of days between orders and full collections. In this way, your reps can see how they compare with each other and the average performance of your whole sales team.
Tips for coaching your sales team
Praise in public, and be continuously looking to catch them when they do things right so you can reinforce great behaviors.
Criticize in private, and always offer some suggestions for a better way to accomplish things, based on your experience.
Providing the answers to every problem will make you the "answer person," which is bad from a time-management standpoint. Instead, ask questions that help your people to get the answers to their own questions and problems.
Pressure your sales team to evaluate themselves continuously. They will always be harder on themselves than you could be.
Build their self-confidence.
Keep excellent records and stay on top of the numeric performance of your team, so that your evaluations are not based on objective thoughts, but rather pure performance facts.
Always be training your replacement so that you can move up to the next level.
Lastly, make your sales people feel successful by inspiring them, listening, and providing helpful suggestions via questions that lead them to their own motivation. They can't charge into their sales day effectively if they're not feeling on top of the world. Salespeople who feel unstoppable not only perform better, but pick up the pace of the rest of your sales team.
Building Your ISP Sales Force
When it comes to sales organizations, most independent ISPs are woefully underpowered. What's the problem here?and what can you do to remedy it?
by Jason Zigmont HowToSell.net [July 30, 1999]
The basic problem is a general lack of skilled salespeople within the relatively young Internet industry. It's tough for an ISP to take a car?or carpet?salesman (or woman,of course) and instantly turn him into an Internet sales guru.
If you do find someone who's skilled in Internet sales, he or she is pretty much guaranteed to be working at an ISP already. If you want him or her, you'll have to pay dearly. Turn the situation around and you've got another problem: If you're looking to poach other people's talented salespeople, chances are that if you have good salespeople, your competition wants them, too.
Either way, you end up paying big salaries to the key salespeople within your organization. These essential people will probably bring in most of your business. (Remember the 80/20 rule?) This most likely gives you one or two heavy hitters, which probably will not be enough to carry a company, but will keep you right-side up.
But to grow your sales force without going bankrupt, you'll need to add less experienced people and hope you can train them to the level of sales success that your key people have achieved?without losing them along the way.
Two choices
You can hire salespeople who may not know how to plug a computer into the wall and train them on the technical side, or hire technical people who couldn't sell water in the desert and bring them up to speed on sales skills. But which way to go?
For most ISPs, a simple answer is to bring your technical staff into the loop as sales support. This then shifts the balance in the direction of hiring people with proven sales records (preferably not in carpet or used cars sales) and training them technically. And you really do need to train them. Training is all too often overlooked, but it can make the difference between success and . . . well, that other thing.
Instant producers?
When general 'management' people hire saleseople, they often expect them to start producing immediately?forget about training and forget about the sales cycle. If you do this, you're only setting yourself up for disaster. Try to hang onto the idea that in this business, it ain't gonna work that way. The simple truth is that your sales recruits will have as much technical knowledge as you are willing to give them.
Even if you do have the ability to train sales recruits in both sales and technical skills, not every newcomer will become a producer. Not everyone is cut out for sales. It's a rewarding, job, but it's demanding too. If they prove unwilling to train, then you hired the wrong person. If they just aren't 'getting it,' all the training in the world won't make them succeed. What to do? Fire early and often. If someone isn't working out, teaching him or her Sales 101?or the technical underpinnings of the ISP trade?will be an investment with no return.
Another problem
In many ISPs, the sales staff are managed by tech staff. Not only does this not foster the teaching of sales skills, it may result in frustrations caused by technical managers' not understanding the sales cycle. But remember, sales is a numbers game. You should be able to forecast your sales and know within reason what your sales will be next month. If a salesperson has nothing on the forecast for an extended period, then there is something wrong.
Finally, many ISPs are willing to pay or otherwise 'incentivize' technical staff to come?or remain?on board, but not sales staff. This is probably because management is typically more in touch with the technical side and the need for good customer service, But the fact remains, you get what you pay for. If you give second-class incentives to salespeople, you'll probably always have a second-class sales organization.
Management 101: Compensating Salespeople
Part 1: Salaries & Quotas
We have explored the process of attracting a sales force, but once the beast's in your barn, how do you feed it to maximize its productivity?
by Jason Zigmont HowToSell.net [August 20, 1999]
A question I am asked repeatedly is "What should I pay my salespeople?" The simplicity of the question suggests a simple answer. For better or worse, however, the answers (note plural) are quite complex. Nevertheless, in this column--and next week's--I will attempt to provide some useful guidelines by exploring some possible solutions.
Disclaimer: That there are dozens of books on salesforce compensation--and thousands of different strategies. You can even outsource your commission structuring to outside experts. So, again, these columns should not be viewed as a comprehensive treatment; rather it sketches out some practical solutions, based on what some ISPs are offering--without delving into the theories behind the solutions.
The first debate in designing salespeople's pay structures is commission-only vs. base+commission or some other variant. Personally--and there are those who vehemently disagree--I would never again hire a commission-only salesperson. I've done it, and I've learned from my mistakes.
Commission-only: Not recommended
While hiring salespeople on commission only may sound attractive, there are many pitfalls. Under normal circumstances, experienced salespeople will never take a commission-only job. Salespeople paid on a commission-only basis not only have problems doing their own budgets, they also have a very rough time getting credit, loans, or any type of credit cards because banks want to see a stable income.
In addition to attracting inexperienced people, commission-only plans can make salespeople desperate, and desperate people sometimes do desperate things. This is not a negative reflection on salespeople (I am in sales, after all), but your salespeople have lives and expenses. A slow month--which may well be completely out of their control--may interfere with their putting food on the table: financial desperation. This will increase the motivation to stretch the truth or flat-out lie to get a sale. Desperate salespeople are not the ones you want representing your company.
If you have decided you want commission-only salespeople, then skip down a few paragraphs to the section on quotas. If I've persuaded you, the next question is what base salary should you pay your salespeople?
Base salary basics
Employers have different philosophies on base salaries, but personally, I believe that a salesperson's base should be just enough to barely cover their normal expenses. Salespeople are money-driven; your goal is to avert anxiety by having the base cover food and shelter, and let the salesperson's drive for money and toys drive them to make sales.
Base salaries vary from area to area, of course. The range I've seen runs from $20k to $70k, with the upper end being in areas like New York City. To determine a reasonable base for your area, start by calculating your cost of living. (There are many cost of living tools available on the web. For example, Career Builder has a good set of tools.)
Tip: You can also use a higher base to entice a salesperson to come to your company and to reward your 'senior' salespeople.
Quota quotients
The next step is to determine what quota your salesperson will have to achieve in new sales each month. Quotas are generally defined in terms of a total of new monthly recurring revenue, but I have seen combined quotas of recurring revenue and non-recurring revenue. Ideally, you would like to have your salespeople bring in new sales equal to or greater than their monthly base salary. That is, if they have a base salary of $60K, then you would ideally have a monthly quota of at least $5K. This approach works equally well for junior and senior salespeople, as it's calculated from their base salary.
While dividing base salary has the virtue of being a simple method, it glosses over two significant factors that you need to consider. The first of these is your product set. Quotas for salespeople selling higher priced products (high-speed access, co-location, etc.) can be higher. The opposite is true also. The second is what level of sales are actually possible both given your geographic and market area, and your system limits. That is, if you can't handle $5k in new sales each month, then it makes no sense to set quota that high.
Stat: Average ISPs have a quota of between $3K and $4K in new sales every month.
Quotas function as both a goal and a calibration tool. If a salesperson constantly misses his/her quota, and the rest of the sales force is beating it, then it is probably time for that salesperson to shape up or ship out. If no one is beating the quota, then maybe it is a little high. You need to experiment with quotas to see what is right for you.
Tip: Beyond quotas - Quotas are necessary and good, but you need more: You should also have an incentive for salespeople to beat their quotas. As noted, salespeople are competitive creatures, and contests motivate them. Some companies have a 'commission accelerator' or bonuses for exceeding quotas. Many companies have a 'President's Club', which is usually a company-sponsored trip for salespeople who beat their yearly quota. (Monthly quota x 12)
Management 101: Compensating Salespeople
Part 2: Commissions
We discussed the 'simple' parts of salesforce compensation: base salaries and quotas. Now, lets discuss the delicate art of setting commission rates.
by Jason Zigmont HowToSell.net [August 27, 1999]
After you have set quotas for your salespeople, the next step is to determine their commission percentage. The actual percentages should be determined by your profit margin. Also, by adjusting rates for individual products, commissions can become tools for motivating salespeople to sell certain products over others.
Playing the percentages
Two commission structures that are especially popular with ISPs are:
percentage of monthly recurring revenue (% of MRR) every month, and
one-time % of MRR.
Both have pros and cons, and we'll examine them in detail below. In practice, however, your accounting and payroll system may prove a critical factor in determining which you'll use: Many ISPs simply can't use a % of MRR every month system because their accounting software can't produce the necessary reports.
Both systems may also include a one-time percentage of any setup fees, but usually this is around 10 to 20 percent; it shouldn't be where a salesperson makes their real money. Commissions are usually paid one month behind to assure the sale is real and that the customer was added and billed.
Some companies do not pay commission until they receive payment from the customer, but in effect, this puts the salesperson in charge of accounts receivable. Personally, I'd rather have them out getting new sales then chasing money on a monthly basis.
Every-month system
In a % of MRR every month system, the salesperson is paid a percentage (usually 10 to 25 percent) of cumulative sales, every month. That is, if they had $1,000 in sales month 1, $2,000 in sales month 2, and $3,000 in month 3, then assuming a 10 percent commission rate, in month 1 they would receive 0 in commission (commissions are a month behind.), $100 in month 2 (10% of month 1), $300 in month 3 (10% of month 1 plus month 2) and so on, as the following chart illustrates.
Month 1 2 3 4
Sales $1,000 $2,000 $3,000 $4,000
Commission* $0 $100 $300 $600
*assumes 10% commission
This commission structure is nice because then the salesperson gains a personal stake in the customer, and is more likely to help the customer after a sale. While it is possible to do chargebacks with the next structure, it is much harder.
This structure tends to produce a steady, generous revenue stream for salespeople?sometimes causing what is often called the 'fat and happy syndrome'. The key is in the salesperson's quota. If they don't make their quotas, they may be fired and lose that revenue stream. The threat of loosing this very lucrative revenue stream is also an effective employee retention tool.
One-time system
In the flat-, or one-time percentage of sales system, the salesperson gets a cut, which can range from 50 to 200 percent, of the first month's sales. That is, if they had $1,000 in sales month 1, $2,000 in sales month 2, and $3,000 in month 3, then assuming a 100% pay rate, in month 1 they would receive $0 in commission (commissions are a month behind.), $1,000 in month 2 (100% of month 1), $2,000 in month 3 (100% of month 2) and so on. See the chart below:
Month 1 2 3 4
Sales $1,000 $2,000 $3,000 $4,000
Commission* $0 $1,000 $2,000 $3,000
*assumes 100% commission
This plan wins points for simplicity. The math is easy, and the numbers are very easy on accounting and payroll. The hard part is keeping the salesperson interested in the customer post-sale. One way to counter this syndrome is a chargeback program where the salesperson gets charged back commission but this is often more trouble then it is worth.
Chargebacks can cause an adversarial relationship, and are hard to calculate if you do not have a yearly contract. In most cases, the company ends up eating the charge backs, as it is not worth the hassle.
Whatever systems you decide to go with, you'll need to tinker in order to find exactly the right fit for your company. Also, there is one provision in every commission plan that you should include. "Employer has final say over all commissions and may change this plan at any time." Use this clause to your advantage, and change it if it is not working for you.
ISP Sales Commissions
Want to tune your sales organization for maximum efficiency? Matching the right payment system?and the right commission structure?to the job can make all the difference.
by Christopher Knight [September 20, 1999]
You're ready to build your first ISP sales team and you want to create an effective commission strategy. Or perhaps you already have an ISP sales team, but you're not sure if you're paying them appropriately. Today's article delves into strategies for paying your salespeople that produce optimum results for you, your sales reps, and your ISP.
There are three possible ways to pay ISP salespeople:
Base-pay-only.
Base-pay-plus-commission/bonus.
Straight commission with a recoverable draw.
Each of these approaches has its own set of implications
Salespeople who are paid a base salary only?
Tend to not be as motivated on a daily basis as those who are compensated on a commission or bonus structure in addition to their base pay
Tend to be your marketing and/or sales assistants, typically performing many standard sales functions-except for that all-important cornerstone of salesmanship: asking for the order
Sales reps of less than topnotch quality may stick with you forever if you compensate them with adequate base pay. Top-gun salespeople paid this way, on the other hand, will quickly decamp to the first one of your competitors who offers them a chance to increase their income via commission or performance bonuses.
This is not to say that you could not have a profitable or successful relationship with a sales rep compensated via base pay only. If you choose this unconventional route, however, you must clearly define minimum expectations; if they don't meet them, you may have to consider letting them go.
Salespeople who get base-pay-plus-commission?
Tend to be motivated on a daily basis
Are able to sell without worrying that they need to close the next sale or go huhgry tonight. This allows them to focus more on the customer's than their own.
This is by far the most popular basis for compensating ISP salespeople: The base pay satisfies their basic security needs. The system rewards them with increased pay as their sales efforts (and results) increase, and it keeps their attention focused on corporate goals instead of the own selfish desire to maximize commissions above all.
Salespeople who earn straight commission with a recoverable draw?
Tend to be highly motivated daily, are highly self-disciplined and are typically "A" type personalities.
Tend to be either highly successful or near quitting, depending on their recent performance.
Tend to focus more on selling what they need to sell than selling what the customer really needs or wants to buy.
Have a hard time caring about the rest of their ISP team, as they typically only care about driving their commission up at all costs.
A recoverable draw is where your ISP advances money to a salesperson, to be paid back or "offset" by future sales commissions. This is a way to level the peaks and valleys in a typical straight-commission sales rep's paycheck.
If you decide to employ straight-commission sales reps, the law requires that you guarantee them minimum wage. It's important to keep this in mind when you're managing their recoverable draw. (For more on your local employment laws, check with your State Dept of Human and Labor Relations.)
Risk-Reward Relationships
From the sales rep's point of view, base-pay-only has the lowest risk, while straight commission has the highest. Base-plus-commission represents a broad middle ground. When deciding how to pay your base-plus-commission sales reps, you must calculate the risk/reward relationship, because balancing a high base with a relatively low commission, and vice versa.
How much should I pay them?
Typical ISP reps selling dialup service usually range from $18,000 to $35,000 per year base pay (depending on your location, their level of experience, and your ISPs ability to pay for different levels of sales talent) plus commission ranging from 1 to 7 percent. For salespeople on direct or straight commission, 10 to 15 percent of net collected revenue is typical, with 1 to 2 percent bonuses based on high performance.
Reps selling higher-end dedicated Internet access accounts or web development services are typically paid $24,000 to $60,000 as a base plus commission, depending on skill, experience, and performance.
Your goal is to pay less than 10 percent of your gross sales as your sales expenses. For example, if your sales team brings in $750,000 in sales, this should cost you no more than $75,000 in commissions/pay. The only time it would make sense to pay more than 10 percent of your gross sales is when you need your ISP to grow faster than normally possible, either because of the lifetime value of each customer or the recurring revenue stream you need to meet your plans.
What do I pay commission on?
The standard procedure is to pay commission on the basis of net collected revenue for the given pay period, never on the gross revenue. This helps to motivate your sales team to see that customers pay their bills. Otherwise you'll be paying your reps on the basis of billing that may remain unpaid or unpayable.
A note for ISP salespeople:
Assuming you'e paid on a base-plus-commission or straight commission basis, your goal is to maximize your commission amount. The size of your income is directly proportional to the volume of sales you close?the value you deliver. If you want to make more money, you must find a way to increase the number of sales you close and the amount of value you deliver.
In my opinion, there is no greater role within an ISP organization than being in sales. After all, nothing happens until a sale is made. Not only that, starting in sales is a great way to make it into upper management, or to end up leading a sales team of your own - while earning commission on the performance of your team.
ISP Sales Team Management 101
A managed sales team is a more productive sales team. Setting high goals and standards is the beginning.
by Christopher Knight [September 27, 1999]
Out of every ten salespeople you hire, only one or two will be great; the others will be marginal at best. This leads to the typical situation where 80 percent of your sales come from 20 percent of your people. To maximize sales?to get your sales team performing to the ultimate best of their ability?you need to get involved.
Some initial guidelines for ISP Sales Managers
Don't accept anything less than 100 percent commitment and effort from each of your sales reps.
It's not who you hire, but who you don't fire fast enough that can threaten your total sales. Always be recruiting.
Encourage your people to emulate a top dog in your sales department?or yourself?when it comes to learning the ropes.
You determine the pace of the pack. Set your goals high enough to keep everyone running?including yourself.
To do their job properly, your team needs to have quick access to information and sales materials. This includes flyers, brochures, spec sheets, customer testimonials, biz cards, letterhead/envelopes, etc.
Prepare yourself and your reps for maximum output Your sales reps have one goal: to sell. Your goal is to provide the leadership that helps them maximize their potential, and at the same time fully realize the potential of the services your ISP can provide.
Create a pre-selling plan of attack, so that each of your reps is familiar with common customer characteristics and the typical needs and wants of each customer type. For example, divide your business into product-line units, such as dialup Internet access, dedicated access, Website hosting, Website design, Perl or CGI programming, etc. For each product or service line, create information sheets for your reps that outline how to maximize sales from each group.
Time-management skills often make the difference between excellent and mediocre performance. You must not only set the example for what great time management looks like, you should be generous with tips and guidelines on time management for your staff. Perhaps more important, you need to set expectations for how they will discipline themselves to achieve maximum productivity.
There are selling hours and there are preparation hours. Help your team to know the difference and what you do during each of these periods. Typically, the preparation time is before 8 AM and after 5 or 6 PM. The time between 8 AM and 5 or 6 PM should be pure selling time.
Tip: Have each of your sales team members send you a "60 second report" email at the end of their day. It should briefly cover what their sales and collections were, what went great, what went wrong, how they rated their day, and any problems they had that they want your help with. This is an extremely powerful way to get your people to be accountable, while helping you manage the flow.
Some scary sales statistics
40 to 75 percent of sales leads passed to a rep never gets followed up.
70 percent of your sales staff lack strong closing skills or will fail to ask for the order
These numbers are derived from my personal experience of hiring over 300 salespeople over the last ten years. A successful sales manager is not only a teacher and mentor, but needs excellent followup skills in order not leave money on the table.
Another approach to this problem, however, is take the lead and give your reps whatever basic skill training is required to get them to close sales. Failure to close generally comes either from fear or from laziness. In cases where it's the former, you can build up their confidence. Where it's the latter, the solution is often to fire them. Nothing personal, but the owners of your ISP want results, not excuses.
Managing your ISP sales team by the numbers
What gets measured gets managed. Motivate your sales reps by posting publicly their sales totals for the past month, last week, and current week, breaking it down by service or product category type. Also provide figures for average ticket size (total sales divided by number of invoices) and average number of days between orders and full collections. In this way, your reps can see how they compare with each other and the average performance of your whole sales team.
Tips for coaching your sales team
Praise in public, and be continuously looking to catch them when they do things right so you can reinforce great behaviors.
Criticize in private, and always offer some suggestions for a better way to accomplish things, based on your experience.
Providing the answers to every problem will make you the "answer person," which is bad from a time-management standpoint. Instead, ask questions that help your people to get the answers to their own questions and problems.
Pressure your sales team to evaluate themselves continuously. They will always be harder on themselves than you could be.
Build their self-confidence.
Keep excellent records and stay on top of the numeric performance of your team, so that your evaluations are not based on objective thoughts, but rather pure performance facts.
Always be training your replacement so that you can move up to the next level.
Lastly, make your sales people feel successful by inspiring them, listening, and providing helpful suggestions via questions that lead them to their own motivation. They can't charge into their sales day effectively if they're not feeling on top of the world. Salespeople who feel unstoppable not only perform better, but pick up the pace of the rest of your sales team.
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